VAT exemption for DMCs under consideration

Government seeks IMF agreement for reversal

From left: Shirantha Peiris (Chairman- Sri Lanka Institute of Tourism & Hotel Management, Harin Fernando (Minister of Tourism), Chalaka Gajabahu (Chairman- Sri Lanka Tourism Promotion Bureau and Nalin Perera (Managing Director – Sri Lanka Tourism Promotion Bureau. 
Pic by Samantha Perera

• Expresses hope for possible reversal of VAT
• Raises concerns on the tax policy possibly pushing DMCs to relocate transactions to offshore accounts
• Points out the DMCs having accepted forward bookings makes the VAT collection challenging

By Nishel Fernando 

The government expressed confidence in the International Monetary Fund (IMF) exhibiting flexibility by overturning the elimination of VAT exemption for Destination Management Companies (DMCs). 

This optimism arises amid escalating concerns about DMCs relocating transactions to offshore accounts, potentially leading to repercussions on tourist arrivals to Sri Lanka.
Speaking to journalists, Tourism Minister Harin Fernando said a meeting will be held with the visiting IMF delegation to reach an agreement on reversing the removal of VAT exemption on DMCs. 

“The DMCs have already accepted forward bookings up to October this year. So, there are practical issues in collecting the VAT. I am confident that IMF would fairly consider the ground situation,” Fernando said.

The meeting with the IMF staff, who will be in the country till 19 January, was held after the Tourism Minister briefed journalists. 

In consultations with IMF the government increased the VAT rate to 18 percent with effect from this year while removing VAT exemptions on around 100 odd items. The DMCs suddenly found themselves in a precarious position when the new VAT measures came into place. The DMCs were exempted from VAT since April 2020.

Meanwhile, Sri Lanka Tourism Promotion Bureau Managing Director, Nalin Perera noted  that attempts to impose the VAT by DMCs could result in cancellations. This could negatively impact the arrival and revenue targets set for the year.

The government targets to welcome over 2.3 million tourists with plans to earn foreign exchange revenue of US$ 4.5 billion for 2024.

He pointed out that such an upfront tax could paint Sri Lanka as a costly destination among potential tourists and turn them away, hence, rejecting a considerable revenue which could have come into state coffers through other means.

“The tourists contribute much more to State Revenue once they are in the country compared to upfront incomes thorough upfront taxes and charges. Therefore, such taxation spoils the whole aim of increasing government revenue. That’s why we are going to lobby this with IMF,” said Perera.

In talks with budget airlines  for direct flights to Australia

Sri Lanka Tourism is in negotiations with two budget airlines to increase connectivity between Sri Lanka and Australia, the Tourism Ministry said.
Tourism Minister Harin Fernando revealed that discussions are underway with  Air Asia and Batik Air to commence direct flights between Sri Lanka and Australia to boost arrivals during the May-July period, when arrivals from European countries slow down.

 “Although a considerable number of Australians visited the country in 2023, most of them are Sri Lankan diaspora. Sri Lankan Airlines offers a direct flight between the two countries, however, the ticket prices are too expensive, so we need to attract budget Airlines to attract Australian tourists,” said Fernando.

In 2023, over 67,000  Australians visited Sri Lanka, up from 30,924 in the previous year, making Australia the sixth-largest tourist source market for the year.
 In addition, Fernando noted that South Korea and Japan would also be focused on this year to generate tourist traffic.