With several media reports recently highlighting tourists engaging in unregulated businesses and illegal constructions in Sri Lanka while on tourist visas, these incidents have sparked widespread discussions about their potential impact on the country’s tourism industry.
While this phenomenon is not unique to Sri Lanka, the question remains: how significant is the economic impact of such activities in a country heavily reliant on tourism for foreign exchange? The Sunday Morning Business reached out to various industry stakeholders to unpack the complexities and recent developments in relation to this situation.
Legal actions underway
Speaking to The Sunday Morning Business, Sri Lanka Tourism Development Authority (SLTDA) Chairman Buddhika Hewawasam confirmed that the SLTDA was actively managing the situation.
According to Hewawasam, in cases involving tourists conducting businesses using tourist visas, the main solution is to take legal action under the Immigration Act, which is already being implemented.
“We are firmly opposed to unregulated activities. In Unawatuna, we managed to apprehend around eight individuals involved in such activities. Some of them had stayed in the area for five to six years and some had been issued deportation notices.
“This process is currently ongoing in the south, with efforts to address the issue requiring the collective involvement of the Department of Immigration and Emigration, Police, and SLTDA. The initiative will eventually expand islandwide,” he said.
Hewawasam noted that this issue was not confined to the south coast but extended to various tourist resort areas such as Pasikuda. However, the problem is notably more intense in the south. He emphasised that irrespective of nationality, any violation of tourist visa regulations would result in legal action.
Hotline for reporting to be established
This phenomenon is not exclusive to Sri Lanka. As in any other country, legal procedures are being enforced here as well. In addition, Hewawasam revealed that the SLTDA was working towards establishing a dedicated hotline connected to the Tourist Police in order to facilitate the reporting of such violations.
“As these incidents primarily occur in tourist areas, there is a clear need for proper reporting mechanisms. In many cases, there is local involvement as well. For instance, unregulated businesses in accommodation often have locals claiming ownership, making it difficult to take legal action without direct complaints and accurate information. This is the challenge we face and we strongly encourage individuals in tourist areas to share proper information to assist our efforts,” he said.
According to the Department of Immigration and Emigration, a tourist visa in Sri Lanka is designed for bona fide tourists visiting the country for specific leisure-related purposes. This visa permits entry for sightseeing, holidaying, visiting friends and relatives, seeking medical treatment including Ayurvedic and yoga therapies, or participating in sports events, competitions, and cultural performances.
However, the scope of a tourist visa is limited and certain activities are strictly prohibited. Visitors are not allowed to engage in business or trade activities; attend meetings, conferences, or short-term training programmes; or participate in events related to art, music, or dance festivals.
Moreover, using a tourist visa to reside in Sri Lanka in the long term through frequent or successive visits, employment, whether paid or unpaid, and self-employment are also not permitted under this visa. Section 28 of the Immigrants and Emigrants Act authorises power for the Minister to direct the removal from Sri Lanka of persons other than citizens of Sri Lanka.
Development of the issue
Explaining the development of this particular situation, SLTDA Deputy Director General Upali Ratnayake pointed out that during challenging years for tourism, such as the Covid-19 pandemic, several exemptions had been granted to tourists, including six-month visas. Some individuals who were unable to return to their countries were also given flexibility in their stay.
“Certain foreigners leveraged this opportunity, especially due to the lack of enforcement. Additionally, some foreigners facing financial difficulties began working in the country. Many operate as local businesses often with local involvement, particularly in the south as well as in areas such as Ella and surfing hotspots like Arugam Bay and Mirissa. It took time for both locals and the tourism industry to recognise and address this issue,” Ratnayake said.
He highlighted that while most of these ventures initially involved restaurants, they later expanded into tourist operations and other industries, noting that the unregulated nature of these businesses negatively impacted local enterprises.
Ratnayake also added that curtailing this issue was primarily the responsibility of the Department of Immigration and Emigration, as provisions for regulation were included in the relevant legislation. The SLTDA has also taken measures to tackle unregistered businesses.
“We have urged immediate action on these matters and such efforts can be carried out in collaboration with the Tourist Police and the SLTDA. Previously, we also requested a reduction in the duration of the tourist visa, with extensions available if necessary.
“The country requires an expedited action plan, as prolonged unregulated activities could harm the economy. While economic activities are encouraged, these activities can also be undertaken by local businesses. It is quite rare for these tourists to independently promote and bring guests to the country, and the cash flow within Sri Lanka is often limited, as they tend to keep their money in their home countries,” Ratnayake said.
Concerns of locals
Sri Lanka Association of Inbound Tour Operators (SLAITO) Immediate Past President Nishad Wijetunga told The Sunday Morning Business that the organisation had raised the matter with the previous administration nearly two years ago as well, but had not received an effective solution.
“We have been consistently voicing our concerns about this issue because it creates challenges for locals. For instance, the southern coast has several small-scale local businesses, but these opportunities are now at risk due to unregulated enterprises.
“While properly established foreign investments and businesses contribute positively by hiring and training locals and enhancing product offerings of specific areas, unregulated ventures mostly involve tourists operating and running businesses independently,” he explained.
Wijetunga noted that the situation persisted due to certain forms of patronage and endorsements. Recently, SLAITO engaged in discussions with the incumbent authorities, highlighting priority issues and noting that many locals in these areas were deeply concerned about the situation.
Lower costs for tourists’ biz
According to the SLTDA, the average daily expenditure of tourists in 2024 stood at $ 181.15, with an overall average stay of 8.42 nights. Tourists collectively spent over 17.29 million nights in Sri Lanka during 2024, contributing to 2.1 million arrivals and generating more than $ 3 billion in revenue.
“It was noted that the current authorities are actively looking into the matter. Many of these businesses widely leverage social media for operations and the money does not circulate within the country.
“On average, a tourist spends around $ 182 in Sri Lanka. However, tourists running these businesses do not incur the same level of expenditure, which can be as low as 50% of the average spent, given that they primarily bring in only the funds required for their businesses, with excess money not being retained within the country,” Wijetunga noted.
South coast a popular attraction
According to the SLTDA, as of June 2024, the total number of SLTDA-registered accommodation establishments for 2023 and the first half of 2024 reached 4,390, offering a capacity of 53,378 rooms.
Moreover, Galle, Matara, and Colombo emerged as the leading regions for investment projects, recording 166, 89, and 86 projects, respectively. The Southern Province has increasingly become a focal area for investments in tourism accommodation.
According to Wijetunga, in addition to restaurants and accommodation rentals, there are also businesses such as daycares catering to families travelling in the south. He identified common areas for business activities in the southern coast, including Hikkaduwa, Unawatuna, Thalpe, and the stretch from Galle to Mirissa, as well as Arugam Bay.
Addressing potential solutions, Wijetunga emphasised the importance of strong collaboration among and enforcement by immigration officials, the SLTDA, and Police to conduct raids and make arrests, adding that discussions regarding solutions had been positive so far.
Proper awareness required
In Sri Lanka, prior approval from the Board of Investment (BOI) is necessary before establishing a foreign business venture. As per Section 16 of the BOI Law, the Government allows up to 100% foreign participation in many economic sectors, with automatic approval granted by the BOI for such investments.
Investments in certain restricted sectors are subject to a screening process and approval is granted on a case-by-case basis if foreign investment exceeds 40%. The BOI serves as the sole point of contact for foreign investors.
Chamber of Tourism and Industry Sri Lanka (CTISL) President A.M. Jaufer highlighted the importance of providing adequate awareness to tourists regarding the existing limitations and facilitating proper investments.
“Unregulated businesses operate in many areas with over 40 individuals recently identified. Identifying these tourists and providing effective awareness immediately is crucial to addressing this issue. Regulated and proper business activity can be beneficial to the country’s economy, as it involves collaboration with locals,” he stated.
Regarding potential solutions, Jaufer suggested that zonal tourism offices and investment offices could be beneficial in tourist areas to provide proper mechanisms, alongside strong enforcement and awareness of visa challenges and limitations by the Department of Immigration and Emigration.
“If proper investment is made by these individuals, educating them and introducing proper legal mechanisms can benefit local economic activity as more connections are also essential for the industry,” he noted.
Regularisation is key
Meanwhile, Sri Lanka Tourism Alliance Co-Chair Malik J. Fernando noted the need for regularisation. Certain businesses that have been established have added value to Sri Lanka’s tourism attractions, bringing in innovation and creating employment opportunities for locals, such as providing training for yoga instructors, surfing instructors, and baristas.
He emphasised that while the country should encourage product development, proper regulation was integral. This includes ensuring formal licensing mechanisms, taxation, and contributions to the economy. Fernando added that there had been numerous instances of system abuse such as collecting money overseas and failing to pay local taxes.
“A majority of businesses are making a proper contribution, particularly those that have been in Sri Lanka for many years. However, there have been instances of recent arrivals abusing the system, which emphasises the need for regulation,” he stated.
Fernando highlighted that formal businesses established by foreigners generally added significant value to the destination by making it more attractive for travellers, especially in areas such as Ahangama, which includes many foreign-led enterprises. Ensuring regulation and regularisation in a way that benefits the country’s economy is a critical step.
Local involvement prevalent
Association of Small and Medium Enterprises in Tourism (ASMET) President Rohan Abeywickrema highlighted the extent of local involvement in these business activities.
“In areas such as Mirissa and Weligama, the owners of these enterprises are usually Sri Lankans. Those who are well aware of tourist visa limitations are engaged in renting accommodations and running restaurants.
“Other enterprises affected by this often have no say due to local involvement. Also, at times, certain tourist operators are able to get their visas extended on the basis of working as tourist operators for specific companies, further indicating local assistance,” he said.
Abeywickrema stated that his observations and inquiries into this situation across several tourist areas pointed to the same issue of local involvement, emphasising the importance of educating Sri Lankans in these situations.
He further noted that while foreigners conducting business in Sri Lanka had been historically observed, the issue had reached an elevated level with unauthorised collaborations. It is difficult to assess the full extent of the impact on local businesses, as the situation has also become politicised, according to Abeywickrema.