As Sri Lanka’s tourism industry experiences growth on one front, it is accompanied by challenges on the other. One such challenge involves the increase of unregistered homestays in the country’s tourism zones.
Reports suggest the emergence of a multitude of homestays in tourist hotspots across the country sans registration with the Sri Lanka Tourism Development Authority (SLTDA).
Speaking to The Sunday Morning, Sri Lanka Tourism Promotion Bureau (SLTPB) Chairman Chalaka Gajabahu acknowledged the presence of numerous unregistered homestays catering to tourists in the southern regions. He said that a monitoring system was being developed in relation to this and that the Tourism Police would be more active in overseeing such matters.
Furthermore, Gajabahu revealed that the SLTDA Chairman had devised a plan in this regard which was currently underway.
SLTDA efforts
Addressing unregistered homestays, SLTDA Chairman Priantha Fernando told The Sunday Morning that according to Tourism Act No.38 of 2005, no establishment could provide services to foreigners unless they were registered and licensed with the SLTDA. Fernando pointed out that as of December 2023, 23% of registered establishments in the accommodation sector were homestays.
“A significant challenge lies ahead, particularly in the formal sector where the available rooms number around 52,000. Simultaneously, the informal sector potentially boasts an additional 40,000 rooms. Taking proactive measures, our focus is on urging unregistered businesses to align with our standards. Offering them an opportunity to conform to our criteria, we encourage them to register with us. This ensures that the quality and standards align precisely with our specified criteria, promoting a uniform and regulated industry,” Fernando said.
He also said that in the upcoming months, the SLTDA planned to intensify its efforts. “Currently, we face certain limitations, such as a shortage of manpower needed for inspections. These constraints are challenges we are actively working to overcome. In the recent past, Government restrictions on recruitment and spending, reflective of the economic situation, posed hurdles. However, these restrictions have gradually been lifted. As a result, we anticipate taking substantial action in the coming months to hold those operating in the informal sector accountable,” Fernando added.
He said that firstly, the SLTDA would provide the opportunity for unregistered homestays to register themselves, allowing not only the Small and Medium-sized Enterprises (SMEs) but also society and the communities to benefit by creating opportunities. However, if they failed to fall in line, the SLTDA would then take the required legal action, Fernando asserted.
Tax landscape
“Within these businesses, there exist both advantages and disadvantages, particularly in terms of tax-related matters. Many establishments may currently be exempt from the Value-Added Tax (VAT). However, upon registration, they become subject to the 1% Tourism Development Levy (TDL) and an additional 1% Local Government tax. Furthermore, a 2.5% Social Security Contribution Levy is applicable,” Fernando highlighted.
As part of the formal sector, businesses may benefit from various incentives and these could range from political considerations to economic factors, he said. To support these formal entities, initiatives are being explored, such as facilitating access to vehicle permits. Additionally, there are considerations for preferential treatment with local authorities, including certain transport services such as buses, Fernando added.
However, he said that it was essential to acknowledge the downsides in the taxation landscape since the set of taxes and levies could pose challenges to businesses, both in the formal and informal sectors. Balancing these aspects is crucial as policymakers strive to create a fair and supportive environment for all businesses, considering their diverse needs and circumstances.
Prioritising quality and standards
“Another aspect worth noting is our stringent approach toward Online Travel Agencies (OTAs) that choose to promote establishments in the informal sector. We have emphasised on the importance of these agencies exclusively endorsing formally registered establishments. This stance has prompted us to take a firm stance on OTAs, as we believe in promoting the formal sector. Sufficient time has been provided for them to align with our guidelines and register with the SLTDA. However, if compliance fails to occur, we will be compelled to take strong measures,” Fernando said.
He pointed out that with the growth of tourism, quality and standards had to be prioritised and upheld as this held paramount importance for the future. Consequently, he assured that changes were anticipated in the upcoming months as the focus shifted to maintaining high standards in response to the growing tourism sector.
Unauthorised overstays and activities
“Tourist groups tend to overstay their visas and engage in various unauthorised activities in the southern part of Sri Lanka. They are not permitted to do so. With a tourist visa, they come and rent houses, subsequently subletting rooms and engaging in other activities. It is a sector that is not easy to control or monitor to identify those with tourist visas and those without,” Fernando said.
He also said that to address this issue, the SLTDA, in collaboration with the Tourism Police, had conducted a small survey, covering about six or seven establishments. During this investigation, the SLTDA had observed that the establishments needed legal authorisation to be involved in such activities and that they had to be registered with the Department of the Registrar of Companies, engage in legal business with local collaborators, and possess resident visas from immigration.
“Identifying individuals with the required approvals and a valid visa to stay in the country as opposed to those who do not remains a significant challenge. The complexities involved make it very difficult to pinpoint and differentiate between lawful and unlawful activities in this sector,” Fernando highlighted.
“We are conveying a positive message, urging individuals not to engage in commercial activities while on a tourist visa as such endeavours are strictly prohibited. Upon the expiration of their tourist visas, they must depart. However, an extension of up to six months can be obtained by paying the immigration fees. During the extension process, individuals must ensure they possess the necessary resources to sustain their stay. Upon contacting the Immigration and Emigration Department for confirmation, an extension of the visa as per current laws can be granted for a maximum of six months,” Fernando said.
Fair play
Meanwhile speaking to The Sunday Morning, The Hotels Association of Sri Lanka (THASL) President M. Shanthikumar said that as a responsible organisation, THASL always recommended every institution to register itself according to the country’s laws.
Additionally, he noted that it was essential to ensure the payment of all taxes and levies to the Government which ensured fair play in the industry. Without adherence to these regulations, registered hotels may end up paying over 30% more than unregistered businesses and therefore, all tourism-related institutions must register promptly, he added. He noted that the registration process was very simple and could be done online within a day.
The complete registration guidelines for homestays issued by the SLTDA supported by the Asian Development Bank (ADB) can be found on the SLTDA’s official website.
Shanthikumar pointed out that the SLTDA was taking action regarding the issue by trying to convince the relevant personnel to register themselves. “While some are registering, others are not. Going forward, I believe all will have to register,” he stressed.
In addition, Shanthikumar noted that unregistered homestays could potentially accommodate tourists who were overstaying their visas. He charged that such unauthorised homestays did not even examine the passports of tourists during check-in.