- Need for formalisation, regulation highlighted
- Residents question regulatory compliance of mushrooming informal establishments
The recent onslaught of Cyclone Ditwah has exposed the fragile balance between development, ecology, and safety in Sri Lanka’s Central and Uva Provinces.
The central hills, once known for their serene landscapes and cool mountain air, now bear the mark of a tourism boom that local communities struggle to keep up with. This tension between economic opportunity, unplanned developments, and environmental vulnerability has become visible in the wake of natural disasters.
Over the past decade, hundreds of hotels and homestays have mushroomed in areas such as Hanthana, Kandy, Ella, Badulla, Bandarawela, and Nuwara Eliya, often without strict regulation or consideration for the environment. This rapid, largely unregulated expansion has left residents anxious about both safety and the long-term impact on their communities.
Concerns of local communities
Following the disaster, Kandy District Secretary Indika Udawatta told The Sunday Morning that only a limited number of properties had suffered minor damage, stressing that construction approvals and safety oversight rested with the Central Provincial Council.
Yet locals argue that the system is far from transparent, leaving many unsure as to who is responsible for permitting development in their neighbourhoods.
Dayarathna, a resident of Hanthana, recalled: “It used to be quiet. People built houses, then quietly turned them into hotels. During holidays, our streets are jammed, water runs short, and landslides feel closer than ever. Who gives permission for all this? We don’t know.”
This sentiment is echoed elsewhere. In Ella, Buddhini, a mother of two, expressed her daily anxiety. “Tourists love the view, but every time it rains, my children’s school route feels dangerous. Hillsides are cut for hotels, streams are diverted, and the land seems unstable. We feel powerless,” she said.
Aslam from Badulla added: “Hotels keep coming up, even on steep slopes. Some structures look temporary, poorly built, and ready to collapse. We live in fear now. It’s not just about tourism; it’s about our lives.”
Similarly, a vegetable crop grower told The Sunday Morning: “They say it’s progress, but when the soil gives way, it’s our homes and livelihoods at risk. Our voices aren’t heard in the councils that approve these projects.”
These accounts highlight that beyond immediate safety, residents are concerned about the wider social and cultural impacts of unregulated tourism.
Villagers and residents also report clogged roads, strained water supplies, and rising noise and waste levels, turning once-tranquil communities into bustling tourist zones. Many fear that if a major disaster occurs, the effects will ripple across the Central and Uva Provinces, undermining both local livelihoods and Sri Lanka’s broader tourism reputation.
For residents, the debate has shifted from mere numbers or regulations to the protection of homes, the environment, and peace of mind. “We welcome visitors, but not at the cost of our safety and the hills that have sustained us for generations,” an elderly resident of Hanthana, who did not wish to be named, said.
Need to formalise tourism accommodation
The concerns of local communities intersect directly with Sri Lanka’s strong rebound in tourist arrivals during the first half of 2025. High-demand regions, particularly the central hills, have seen renewed pressure on infrastructure, highlighting the urgent need to formalise and regulate tourism accommodation to ensure sustainability, safety, and equitable growth.
According to the Sri Lanka Tourism Development Authority (SLTDA) Year in Review Report, tourist arrivals between January and June 2025 reached 1,168,044, a 15.6% increase over the same period in 2024. Consistent month-on-month growth, peaking at 21.8% in June, signals rising international confidence in Sri Lanka as a destination. However, this rapid recovery has outpaced the formal expansion of registered accommodation in key hill country zones, leaving much of the growth to informal operators.
While national registered room capacity increased by 6.2% – from 53,378 to 56,702 rooms – this growth remains modest relative to demand, suggesting that a significant portion of visitor accommodation may be absorbed by unregistered properties. The issue is particularly pronounced in the central hills, where popularity, land constraints, and environmental sensitivity limit large-scale hotel development.
The Central Province, a core component of the region, added 666 registered rooms between June 2024 and June 2025, increasing total capacity from 8,771 to 9,437 rooms. Kandy (4,388 rooms), Nuwara Eliya (2,596 rooms), and Matale (2,453 rooms) continue to dominate the formal accommodation landscape. Yet this moderate growth contrasts sharply with the visible proliferation of villas, homestays, and guesthouses operating outside formal regulations, reflecting a growing informal sector.
A similar pattern emerges in the Uva Province, where registered room growth was marginal – rising by just 35 rooms to 2,773 by June this year – despite sustained demand in destinations such as Ella and Haputale. The Badulla District, which accounts for 2,086 rooms, remains the focal point of formal accommodation, while the surrounding areas clearly show informal expansion.
Industry sources warn that this large informal segment undermines quality assurance, visitor safety, tax compliance, labour standards, and environmental management, particularly in ecologically fragile hill-country zones. Unregulated development also creates an uneven playing field, disadvantageously affecting compliant, registered operators.
Although national data indicates growth in guest houses, bungalows, and boutique properties – well suited to hill-country tourism – the continued underrepresentation of heritage and eco-based registered accommodations points to gaps in policy incentives, registration simplification, and targeted awareness campaigns at the regional level.
The concentration of nearly 78% of registered rooms in the Western, Southern, and Central Provinces further highlights structural imbalances. Even within the central hills, formal supply seems insufficient against rising arrivals, reinforcing the concern that growth is being absorbed informally rather than through regulated channels.
The requirement to formalise accommodation in high-pressure destinations needs to become a policy priority. Streamlined registration processes, differentiated standards for small and community-based operators, fiscal incentives, and stronger local authority coordination are seen as essential to safeguarding the region’s long-term tourism viability.
According to some industry leaders, who spoke to The Sunday Morning on conditions of anonymity, without decisive action, the surge in demand risks entrenching informality, eroding destination quality, and placing irreversible pressure on cultural and environmental assets, precisely when Sri Lanka’s tourism recovery should be consolidating on a sustainable and accountable footing.
Not by choice
Many hoteliers operating in high-risk tourist areas argue they are part of the informal sector not by choice but due to bureaucratic delays.
“Most of the tourists coming to Sri Lanka arrive because of us. We may be considered informal, but it’s not our fault. Many of us have applied for licences, yet getting approval takes forever. We have to send letters back and forth, visit multiple offices repeatedly, and wait months for responses. If there were a faster, more efficient system, we would do it immediately,” the owner of a small boutique hotel in the Kandy District told The Sunday Morning.
One hotel owner framed the issue from a taxation perspective, arguing that authorities pushed registration primarily to collect taxes.
“Why do they want us to register? Because they want our taxes. Have they ever gone easy on us? Our rates are far lower than registered hotels, yet it is us who attract the majority of tourists. If authorities have concerns about quality, there are other ways to check on them. But the hidden reason for insisting on registration is essentially to collect taxes, that’s all,” he told The Sunday Morning.
He added: “We all pay taxes, yet we have to keep our room rates low. We are the backbone of the tourism sector. Ask any tourist leaving the country which hotels gave them the most fun and adventure. Formal hotels may offer luxury, but we offer experiences they often don’t, and if they do, it’s at a much higher cost.
“Look at Thailand, the Maldives, and Vietnam; our competitors face the same situation. Not every tourist comes for luxury; many come for the wilderness and the adventure.”
Financial control gaps
Concerns about informal operators intersect with official lapses in financial oversight. The latest audit report on the Sri Lanka Tourism Development Fund revealed weaknesses in data management, revenue recognition, and recovery of statutory dues from the SLTDA.
The audit highlighted the SLTDA’s failure to maintain a comprehensive database of tourist enterprises and service providers liable to pay the Tourism Development Levy (TDL), making accurate calculation of annual TDL income and receivables impossible. The management has acknowledged this gap and is taking steps to establish a proper database, but non-compliance by registered institutions continues to hinder accurate monitoring.
Lapses in levy recovery were also noted, including dishonoured cheques totalling Rs. 1.52 million from 2019–2024, for which no effective recovery action had been taken. Additionally, income recognition practices were questioned, with Rs. 5.99 million in fixed deposit interest income incorrectly recognised in the same year, overstating income.
No threat to registered hotels
Against such a backdrop, when contacted by The Sunday Morning, The Hotels Association of Sri Lanka (THASL) President Asoka Hettigoda argued that registered hotels faced no threat, emphasising that the Government’s directive against unauthorised construction affected all sectors, not just tourism. THASL member hotels with SLTDA approval operate fully within regulations.
Hettigoda stressed that the real challenge lay with non-registered hotels and guesthouses, underscoring the need for a comprehensive regulatory framework. Highlighting the informal sector as a global phenomenon, he pointed to platforms like Airbnb and advocated for learning from international best practices to gradually formalise informal operators.
He acknowledged that fear of taxation discouraged small operators, noting this was a wider national policy issue rather than one confined to tourism. Addressing whether the informal sector posed a threat, Hettigoda said it played a mixed role, attracting tourists seeking authentic experiences yet posing risks due to lack of standards and non-adherence to laws.
“The issue is not pricing or competition. Our concern is whether guests are looked after properly,” he said.
Hettigoda also noted that staying with local families enhanced Sri Lanka’s tourism appeal, provided guidelines, hygiene standards, and transparent information were maintained. Addressing revenue concerns, he emphasised that earnings from informal operators remained untracked, urging caution when assessing their contribution.
Meanwhile, SLTDA Chairman Buddhika Hewawasam failed to respond to repeated attempts by The Sunday Morning to contact him. The questions focused on hotel safety in high-risk areas, formalising small accommodations, environmental oversight, Tourism Development Levy collection, and coordination with local authorities for safe and sustainable tourism.