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Tourism industry alarmed over shift to BTT
View(s):Sri Lanka’s rapidly-growing tourism sector has urged the Prime Minister and the Finance Minister to desist from changing the tax system to BTT from the current VAT, warning it could result in the ‘death’ of the industry.
Hotels Association of Sri Lanka (THASL) representatives met yesterday and raised concern over the proposed change which is expected to be announced in Friday’s budget.
In a letter sent after the meeting to both Prime Minister Ranil Wickremesinghe and Finance Minister Ravi Karunanayake, the THASL said, “Any change that will move away from VAT to perhaps a Business Turnover Tax will have serious implications on the cash flow; will have an impact on the growth of new hotels and will negatively impact FD’s coming in; and will have a cascading effect and is not conducive to be applied in the context of a developing economy”.
Reflecting the commonly-held view that this industry has only just begun growing in the aftermath of the 30 year-long conflict, the letter, a copy of which was obtained by the Sunday Times, said that the current tax regime was conducive to the growth of the industry and should be “maintained for at least a further three years so as to ensure the sustainable growth of the industry.”
A THASL spokesperson said that the formal tourism sector regularly paid taxes and last year paid a total of Rs 10 billion.
“Another point to remember is that while arrivals figures are good, revenue is dropping as rates are low.
We need to retain VAT, properly start destination marketing, attract high spenders and increase revenue which will automatically increase Government revenue,” the spokesperson said, adding “the Government and the sector need to work together … not in isolation”.
BTT has a cascading effect. “We will be paying and paying and paying at all levels… while another problem is that the industry has time-bound contracts with tour operators for 12 to 18 months ahead and it would be difficult to pass on these new tax rates with the only option left being absorbing the losses ourselves,” another hotelier noted.
Tax experts have also frowned on the new proposal saying resorting to BTT which was removed in 1998 and replaced with VAT ‘is going backwards’.
Only Brunei and the United States among the top 100 ranked countries in World Bank’s “Ease of Doing Business” use Turnover Tax.
KPMG Ford, Rhodes, Thornton tax expert Suresh Perera said that in 2013 VAT accounted for 44 per cent of state tax revenue. “Thus such a widespread tax affecting many stakeholders should not be abolished with a stroke of a pen by the policymakers without obtaining proper feedback from all the stakeholders concerned including the public,” he wrote in a comprehensive ‘VAT vs BTT’ analysis in the Business Times today.
Among other issues raised in the THASL letter is that the levy of additional taxes will result in the hotel industry being unable to contribute as it does now, to growth and would ignore national policy that considers tourism as a focus area in the Government’s national economic agenda.
It said that if additional tax burdens on the hotel sector were passed on to the customer, Sri Lanka would be unable to compete effectively within the region. This would affect arrival numbers and reduce the much needed foreign exchange generation.