The business of businesses run by tourists

Sri Lanka and its people have been known for welcoming foreigners and being nice to them. Some Europeans came and overstayed for centuries, but now, emboldened by the lax implementation of the law and a thriving culture of official bribery, corruption and plain indolence, a rising number of foreigners are overstaying, exploiting the country’s economic downturn, its hospitality and crazed promotion as a cheap holiday destination.

Last week’s story in this newspaper quoted the Immigration Chief giving marching orders to long-stayer Russians and Ukrainians caught up in a war in Europe and running unauthorised businesses in Sri Lanka.

The chatter on tourism-related social media groups indicates that more and more visitors are looking to set up in a similar fashion outside of the legal framework, while the tourism promoters pat themselves on the back, trotting out the growing statistics of foreign visitors.

Many of these businesses use foreign credit card machines and take payments in cash, direct clients to PayPal accounts registered abroad, or just collect their income overseas for services provided here. They benefit from local resources—including the natural beauty of Sri Lanka—but contribute a minimum in terms of revenue.

Tourism industry players, especially those who follow the rules, have been warning at least since last year, that the situation is getting worse. And they caution that criminal networks could form among some of the more longstanding, aggressive visitor groups who have also cultivated relationships in high offices.

In recent months, more information about these practices has filtered out because the affected parties, including tax-paying Sri Lankans who are forced to compete on an uneven playing field, are speaking out. Separately, some of the business practices of these foreigners have become so blatantly discriminatory against locals that they have attracted heavy criticism.

Sri Lanka needs tourism and foreign investors. There is no argument that the influx of foreign-run enterprises by genuine parties has modernised the sector, enhanced the visitor experience and created a wealth of knowledge that some locals have benefited from.

But it operates very much in a grey area. There is not even enough empirical data about how many businesses are registered or unregistered, on what basis properties are held by foreigners, the type of activities that are carried out or the status of the visas that owners hold.

This lack of information alone should make any government uncomfortable. For the most part, however, the authorities have been happy to allow the situation to spiral out of hand. The worse it gets, the more ordinary citizens will take matters into their own hands; some will create social unrest, while others will emulate the business model, leading the government to lose even more income.

Till now, the authorities have pretended the problem does not exist. Given the sentiment on the ground, however, this is unlikely to remain a viable option. The dilemma of mushrooming foreign-run illegal businesses has to be handled sooner than later. And it must be done with sensitivity, so as not to drive foreign investment out but to draw business people into the tax net to the benefit of the wider Sri Lankan community.