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Sri Lanka not trying to stifle tourism start ups: minister

ECONOMYNEXT – Sri Lanka is not trying to stifle the smaller start up hotels and apartments at the behest of large operators who cannot face competition, Tourism Minister John Amaratunga said, as tourism officials prepare to bring new rules.

"We are doing it in the interest of the industry not because hoteliers want it done," Amaratunga said.

Sri Lanka’s tourism authorities is planning to gazette new rules of get small guest houses and apartments to register with tourist authorities.

Already rules have been gazetted for larger establishments. A hotel is defined as a place with more than 10 rooms with a 3 star or above requiring at least 30 rooms.

"This is a democratic country, there is freedom for anyone to house anyone," Amaratunga said.

"Only thing is we are also worried that they must pay share taxes. Their overheads are still very much lower than hotels, they can still pay the taxes and make a profit."

Amaratunga said in some cases hotel revenue are charged abroad especially on apartments.

"Any company that operates in Sri Lanka must pay the government taxes," Paddy Withana Chairman Sri Lanka Tourism Promotion Bureau said.

It is not clear which taxes authorities are referring to.

Large hotels have been given decade long income tax holidays, and lower rates of taxes after that and in the case some of the largest hotel expatriate managers are also exempt from tax.





Shangri-La, a Hong Kong based chain has been given a 10 year tax holiday while 20 highly paid expatriates have been exempt from pay-as-you-earn tax.

Large hotels approve by the Board of Investment like Shangri-La have also been exempt from paying value added tax on local purchases and imports and also customs duty.

Small operators have to pay duty on all construction material like homeless Sri Lankan residents who build houses. However some luxury apartment complexes are built with duty free imported materials.

All firms with a minimum revenue now have to pay value added tax of 15 percent.

Booking engines charge some of the highest ‘taxes’ in the world for hotels in Sri Lanka, regardless of revenue and it is not clear whether they are being remitted to the government, either by the hotel or the booking engine.

However once registered guest house also have to pay a tourism promotional levy.

"Our thinking in bringing the gazette is to improve standards of the properties," Withana said. "But the destination has to be protected by rules and regulations."

"The informal sector will grow with global booking engines. That we cannot stop."

"A guest house must maintain the standard. That is why we want to bring the gazette and implement the standard."

"We don’t want anyone to go out of business."

Withana said they had already registered home stay providers looking at hygiene and safety aspects.

Most observers agree that safety rules are essential, and Sri Lanka’s building codes may not provide sufficiently for fire escapes or some minimal fire-fighting equipment and hygiene. Some hotels are also suspected to be pumping drainage into the sea, sharply increasing feacal matter in the sea water in top tourist hotspots.

With global booking engines, the market itself has developed regulatory mechanisms based on user reviews for service delivery. With improvements in software, it is increasingly difficult for owners of properties to put false ratings to boost their scores.

Unlike government regulation, where officials can be bribed on annual visits in some countries, and periodic check-ups of all establishments are not practical, booking engines keep property owners on their toes all the time due to guest reviews.

A few years ago, officials were making Malthusian doomsday predictions of a ‘shortage’ of hotel rooms. However in a functioning market there cannot be a ‘shortage’ unless there is price control. Heavy demand allows hotels to charge higher prices and tourists simply move to cheaper destinations.

Global tourism was not developed by large hotels but by small operators from the 1960s with the development of the so-called ‘hippie trail’ which ran via Turkey, Iran, Nepal, India, Thailand, Vietnam, Indonesia to Australia, giving rise to practically all top tourist hotspots in Asia, including Sri Lanka’s Hikkaduwa. (Colombo/July08/2016)

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