Tourism must be treated and supported as an...
Following is the full speech made by Hotels’ Association of Sri Lanka (THASL) President Sanath Ukawatte at the 53rd annual general meeting of the THASL held on October 17, at Shangri-la, Colombo.
Prime Minister Ranil Wickremesinghe, your excellencies, ambassadors and high commissioners, invited guests, the board of the Hotels’ Association of Sri Lanka and the members, ladies and gentlemen.
Today is a very important day for our association because it is the first time the prime minister has graced this occasion. It is also a very special day for the industry as we recognise and celebrate individuals who have contributed invaluably to our industry with a Lifetime Achievement Awards and two Posthumous Recognition Awards (which will take place after dinner).
Prime minister, we sincerely appreciate your presence today and I warmly welcome the prime minister and all distinguished guests who are gathered here to celebrate the 53rd anniversary of the Hotels’ Association of Sri Lanka, the apex body that represents over 230 member hotels in the country with an estimated investment of US $ 10 billion.
Out of the 53 years of its existence, for nearly three decades we went through severe challenges because of the country’s conflict and in 2004 almost half of our hotels were devastated due to the tsunami.
We have come a long way since then. Despite all the adversities the private sector never held back.
We, together with the government, our partners and colleagues at the Sri Lanka Association of Inbound Tour Operators (SLAITO) and the fans of Sri Lanka from around the world, kept promoting the destination together with our national carrier Srilankan Airlines, we kept our flag flying high at a time when there were so many travel advisories issued by foreign governments warning people not to travel to Sri Lanka.
Reflecting on our past, the main inspiration we had was to keep doing what we are passionate about and the incredible faith we have in our country and its people. It is that faith that kept us going through our island’s most challenging times and it is with that faith that I am addressing you today – sharing with you my thoughts on where we can be, if we make the right decisions.
Tourism is a highly sensitive industry. Factors such as wars, epidemics and natural disasters, which are beyond our control, have a direct impact on our business. That is why we keep lobbying with governments to look at our industry in a global perspective.
We are in one of the most competitive industries in the world and countries around us are vying for the same tourist dollars. We need to be smarter and faster in our decisionmaking and develop products that are suited for today’s lifestyles. For example, Singapore developed the Marina Bay Area with convention centres, casinos and theme parks to attract the growing middle class in India and China. Likewise, Dubai, without extensive natural resources has a number of man-made attractions and today it too is a popular place for conventions, conferences, shopping and entertainment.
We are geographically located in a region where we are one to four hours flight distance away to 60 percent of world’s population. For us to attract five million tourists is not a difficult task.
The private sector is happy to make similar investments, if the government is ready to step-in to provide us assistance which the industry desperately needs. Prime minister, we are not asking for subsidies or for special privileges. We are asking for coherent and stable institutional support and for recognition of the contribution our industry has made and continues to make to sustain our country’s economy and her people.
People are one of the many reasons that attract visitors to this county. Appropriately trained staff is very important to our industry. Our association together with the Sri Lanka Tourism Development Authority (SLTDA) is about to launch an islandwide campaign to attract youth to our industry. As an industry, we are working very closely with government agencies to address relevant issues.
The tourism industry is on track to earn over US $ 4.5 billion from visitors this year. We are Sri Lanka’s third biggest earner of foreign exchange and Sri Lanka’s second biggest export industry according to the Central Bank.
That’s right tourism is an export industry. Exporting is when foreign consumers spend their income on domestically produced goods and services. It makes no difference whether it’s the goods that are shipped abroad or is bought by tourists in the country – either way we earn foreign currency.
The World Trade Organisation members (which includes Sri Lanka) recognised tourism as an important export of service in a statement on July 12, 2016. Additionally, the International Trade Centre’s chief of export strategy confirmed in both 2016 and 2017 that tourism is an important export industry and called for strong action around a tourism export strategy to be shared by trade and tourism ministries. New Zealand has set up a Tourism Export Council and in Singapore, tourism falls under the Trade and Industry Ministry.
In Sri Lanka, for national accounting purposes, tourism is regarded as an invisible export. So, I ask why we are not included as part of Sri Lanka’s export strategy? Why are we not offered the same benefits and opportunities as other export industries and treated as an export for tax purposes?
First request
Therefore, our first request is that tourism must be treated and supported as an export industry. This requires the tourism industry to be given adequate recognition as an export industry by way of a stable and rational tax policy similar to other exporting industries in Sri Lanka and similar to what other competing destinations in the region are offering.
In Sri Lanka our industry is taxed at the highest percentage on the top line revenue. If we take the service charge out of the equation, we pay as high as 20 percent tax on our top line revenue alone. In our direct competitor markets, the tourism industry only pays 5-10 percent on the top line revenue as tax. This irrational and uncompetitive tax policy makes Sri Lanka a more expensive destination for travellers.
Current taxation policies discriminate against various parts of our industry. For example, travel agents and even other export industries are exempt from the Nation Building Tax (NBT) but not the hoteliers.
Our issues do not unfortunately end here. Currently, the municipalities and local governments are trying to impose a one percent tax on hotels based on turnover, in addition to the municipal rates and charges we pay already. This is on top of the existing 20 percent tax on top line revenue that we are struggling to pay.
We are battling this arbitrary and discriminatory tax in court as our industry has again been singled out against all other industries, which are not subject to a similar tax.
Hotels are also restricted in improving their earnings due to prohibitive and outdated liquor licensing regulations. Excessive liquor licence fees and a number of hotels being unable to obtain a liquor licence due to outdated irrational government policy has left many hotels struggling.
Tourists are also provided with limited or exorbitantly priced food and beverage options due to high import taxes. Both factors contribute to dampening of demand and harming the tourism industry. If you look at annual reports, of public quoted hotels, almost all the hotels are running at a loss today.
Currently tourism contributes 11.5 percent towards GDP, is the second largest net foreign exchange earner in the country and provides employment opportunities for over 350,000 people both directly and indirectly.
Our industry is the only foreign exchange earner to the country, which has the potential to reach every segment of society, be it the fishmonger, farmer, entertainer, tuk tuk driver to the ‘thambili’ seller and unlike most other export industries over 90 percent of the foreign exchange earnings from tourism are retained in the country.
We therefore appeal to the government to support our industry, which has the potential to become the largest foreign exchange earner and the largest employment generator in Sri Lanka, instead of suppressing its potential.
We are requesting the government to abolish the NBT for hotels and introduce a fair, non-discriminatory, competitive and rational taxation policy to our industry. Request for the lowering of liquor licensing fees and the introduction of rational, nonarbitrary, non-discretionary licensing policies and regulations that support the growth of the tourism industry.
We further propose for the government to introduce tourism zones, much like the export processing zones for the manufacturing industry, as part of our tourism export strategy where licensing regulations are relaxed and opportunities are provided for the private sector to invest in hotels, entertainment, food and beverage services.
Second request
Our second request is for Parliament to bring in required legislation to regulate the informal sector thereby taking an inclusive and nondiscriminatory approach to the tourism industry where all players have an equal say at the table, take equal responsibility for the industry and equally contribute towards its growth.
On this point we are witnessing today a large number of tourist accommodation units mushrooming in the city and elsewhere in the country in a very disorganised manner. An uncontrolled and unregulated number of people are engaging in the tourism industry without complying with health and safety regulations, paying no form of taxation or dues to the government while exploiting online booking engines.
We support the use of online booking platforms and in fact, we encourage them. However, what we request is for control measures to stop the leakage of government revenue by unregulated establishments who are hiding behind the banner of the so-called informal sector but in reality are nothing but tax avoidance schemes.
Most often these earnings never reach our shores. And today we have estimated that nearly 50 percent of total tourist arrivals stay in the informal sector simply because it is cheaper as they do not pay any taxes.
Is it fair that we, hoteliers, who invest large capital from acquisition of land, to construction, provide employment and training to a large number, are subject to all the taxes and regulations but there is another sector which is directly engaging in the same business as we are but getting away without paying a cent?
We have had a number of very fruitful discussions with the Finance Ministry and we have shown what other countries have done to combat this and we are confident that the government will take appropriate action to address this soon, hopefully in the forthcoming budget.
Third request
Our third request is for the government to introduce regulations that promote sustainable tourism.
We believe it is only the government that can effectively bring into force planning guidelines and regulations for zoning of areas suitable for sustainable tourism development and preventing overutilization of national assets.
We believe our country needs a more dynamic approach to manage the industry, which has had to struggle continually, despite being blessed with natural beauty, rich culture, friendly people and a vast array of attractions.
We need a plan not only to increase the earnings from tourism but also to better manage our county’s tourist assets and the environment we live in. For a small compact country like ours, success in tourism should be based on quality, not quantity attracting the right visitors who are appreciative of our diversity- both natural and cultural.
We must be conscious of the negative environmental consequences of large-scale tourism that can pollute beaches and wildlife parks and place a heavy burden on limited infrastructure such as water, power and waste management. If we do not protect our natural resources, soon we will have nothing to pass to our generations to come.
Sustainability must not only focus on environmental sustainability but also social and economic.
If we look at economic sustainability, the current occupancy levels in Colombo city hotels are increasingly negative. Our research shows that average occupancy levels in the city is around 60 percent and can drop to as low as 40 percent during the low season, resulting in hotels to run at a loss.
If the glut in hotel rooms in the city is not contained, continuing hotel losses will discourage new investment in the industry, resulting in a greater negative impact. For this, we call upon the government to impose a temporary postponement on new star-class hotel developments within the Colombo city area until such time a proper comprehensive plan with goals for tourism development is in place and occupancy picks up.
During a recent vote on the minimum room rate conducted by the city hotels association, one of our regional bodies, 99 percent voted to maintain the rate mechanism with enhanced monitoring and strict punishment for those who violate the regulations.
However, since the government has stopped monitoring the imposition of the minimum price mechanism, we have seen a number of hotels in the city, especially in the five-star category, drastically dropping their room rates – setting off a chain reaction affecting all other star-class hotels. When a fivestar hotel brings the rate down to US $ 70 per night on bb basis, how can the other hotels survive?
While room rates have declined, we have not seen a corresponding increase in room occupancy. This is because occupancy is low due to excessive rooms and not because of higher rates. Therefore, the lower rates have not attracted more tourists to our city hotels but deprived the country of the much-needed income and staff of their service charge.
Final request
Our final request is to roll out the much-delayed destination branding and marketing campaign.
The industry has paid a heavy price for this delay and we are happy that this is being addressed now. I would like to mention on this occasion that after almost nine and a half years since the war ended, the prime minister has taken some bold initiatives to fast-track solutions to this problem and on behalf of our industry I would like to express our sincere appreciation to you sir.
We are eagerly waiting for the launch of the global campaign at the World Travel Mart in London shortly.
We must remind ourselves that Sri Lanka has recorded impressive growth in tourism since the end of our civil war without any marketing campaign similar to that of our neighbours. Our growth in the industry has been the result of the hard work done by our hoteliers, colleagues at the SLAITO and others in the tourism industry to promote our country.
We are confident that a wellexecuted destination branding and marketing campaign can positively impact our industry.
Closing
Overall, we are in a very good place with tourism. The growth in recent times has been impressive and a major contributor to the ongoing recovery from the difficult times we experienced in the last three decades.
I am confident that with the ongoing support of the government, we will continue to grow in a smart way so that tourism reinforces itself as, the most viable economic sector to drive foreign currency and employment.
If we are to expand regionally within the country and to make Sri Lanka a year around destination, the government needs to encourage the private sector to join hands in developing infrastructure. Our members have built star-class hotels in the east coast with high expectations but today they are all suffering due to poor connectivity to these areas.
All parts of our island have fantastic heritage and a great story to tell. The process of spreading regionally needs to be a key government policy and one that empowers local communities throughout the island.
Sir, we know that you understand our industry and that you have a passion for tourism. If you can address these issues and formulate practical solutions for them, we can provide our future generations with an opportunity that generations in the past did not have.
Together, we can give millions a better quality of life, whilst we use tourism to grow our economy and share our prosperity.
our first request is that tourism must be treated and supported as an export industry. This requires the tourism industry to be given adequate recognition as an export industry by way of a stable and rational tax policy similar to other exporting industries in Sri Lanka and similar to what other competing destinations in the region are offering
Our second request is for Parliament to bring in required legislation to regulate the informal sector thereby taking an inclusive and nondiscriminatory approach to the tourism industry where all players have an equal say at the table, take equal responsibility for the industry and equally contribute towards its growth
Our third request is for the government to introduce regulations that promote sustainable tourism. We believe it is only the government that can effectively bring into force planning guidelines and regulations for zoning of areas suitable for sustainable tourism development and preventing overutilization of national assets