On 17 November 2020, Prime Minister and Minister of Finance Mahinda Rajapakse presented the new SLPP-led government’s maiden budget for the upcoming year. We sifted through the whole document (so that you don’t have to) and shortlisted the proposals that we think will have a significant impact on Sri Lanka’s tourism industry.
- A single Goods and Services Tax will be levied on alcohol, cigarettes, telecommunication, vehicles, betting and gaming. From what we understand, this tax is expected to replace the plethora of taxes currently imposed on these products. While the tax on alcohol could affect how hotels price their booze, a standard tax on gaming could also make it easier for integrated resorts to operate in Sri Lanka.
- The Value Added Tax (VAT) rate will remain the same at 8% for businesses except banks, finance companies, and insurance companies that generate a monthly income of more than LKR 25 million. We think this is a pretty sensible proposal. ‘nuff said.
- CESS tax will be levied on imported versions of goods that are produced locally. This proposal could potentially make certain inputs to the sector such as amenities costlier. But the hospitality industry has the unique advantage of being able to comfortably pass on these costs to visitors.
- Single-use polythene and plastic to be banned from January 1, 2021. This proposal has been a long time coming, so it doesn’t really surprise us to see it here. But hotels may have to incur costs to change their package designs.
- Import tax on vehicle spare parts will be reduced. This proposal will have a positive effect on hospitality chains, tour operators and other who operate their own fleets. Everyone could be in to reap some significant savings through reduced vehicle maintenance costs.
- Companies with more than 50 employees will be asked to contribute 0.5% of their revenue to fund a COVID-19 unemployment insurance scheme. The fund will be used to support those in the wholesale, retail, and hospitality sectors. This proposal is sound in theory, but we are not sure if businesses would voluntarily donate towards the scheme, considering that everyone is in cash-preservation mode.
- Taxes levied on tourism related businesses by local government bodies will be reduced. This is a very timely proposal, since it could help vastly reduce the administrative complexities faced by tourism businesses.
- The repayment period of loan facilities provided by the Central Bank of Sri Lanka to the Tourism sector will be extended till 30 September 2021. Banks will be provided with a treasury guarantee for up to 50 percent of the loans. This is a good move and gives companies in the hospitality sector some much needed breathing space. However, there have been reports of the initial moratorium working out overwhelmingly in favour of the banks. So we’re not quite sure how this would work out.
- Approvals for construction projects will be simplified. This is a positive development, though we hope construction in the tourism sector comes under a watchful eye so that we don’t find ourselves in another hotel construction bubble.
- Local ship and boat builders will receive a tax break for 7 years. We have always been of the opinion that Sri Lanka has failed to take full advantage of the seas around it. This proposal would be a boon for local boat builders and could inspire them to reach higher. Perhaps then we would have many more Sail Lanka’s.
- A contributory pension scheme will be created for self-employed individuals. This proposal will be welcomed with open arms by the hospitality industry, which tends to consist of many self-employed individuals be they chauffeurs, tour guides, or even travel agents. Two thumbs up!
- Nonresident Sri Lankans would be permitted to purchase luxury apartments using foreign currency earnings or a loan obtained from a foreign bank. Some of Sri Lanka’s most promising hospitality projects that kicked off in the recent past have had a residential component to them. We’ve heard murmurs of the sales of these apartments being really slow due to economic slowdown over the last 12 to 18 months. Considering the low interest rate environment of the world right now, we think this proposal could unleash a new wave of buying interest from Sri Lankans living abroad, which is good news for developers.
- A new legal framework for the Port City Special Economic Zone (SEZ) will be presented to Parliament in January. As many predict (and we are inclined to agree as well) the Colombo Port City SEZ is going to be a transformational addition to Sri Lanka’s hospitality and economic landscapes. The project will create many jobs, while also helping to familiarize Sri Lankans with what world-class hospitality and entertainment facilities should look like. This in turn would have positive spillover effects as the rest of the country will be forced to up their game. Of course, for all this to happen, a sound legal framework is a must and we are happy that one would be presented in two months’ time.
What do you think of these proposals in #SLBudget2021? Do you think they are the need of the hour, or would you have wished for something better? Let us know in the comments!