By Nalintha Rodrigo, Financial Controller, Resplendent Ceylon
Sri Lanka’s tourism industry has been a key driver of Sri Lanka’s economic performance. In 2017, tourism receipts accounted for 5.3% of GDP. As a net importer, the dollar receipts have added buoyancy to the currency, and the increased demand has seen material growth in construction of new hotels and both skilled and semi-employment. An unmeasurable but vital impact has also been the repatriation of skilled leisure sector talent to the island.
In that context, the economic shocks from the incidents of Easter 2019 have been immense. The government proposed four key measures to help cushion the economic impact, however implementation has been slow. It is now a month since the concessions were first agreed.
Measure 1: Reduction of VAT from 15% to 5% for one year (hotels, guest houses and restaurants registered with the SLTDA and on inbound tours by travel agents registered with the SLTDA)
The Inland Revenue Department announcement restricted claiming input VAT whatsoever, citing clause 22 (3) of the VAT Act, inadvertently making the whole exercise a penalty as opposed to a concession.
Recommendation: Clause 22 (3) was intended for when the VAT rate was 20% and a concessionary 5% rate applied for some industries. If the concessionary rate for tourism is changed to 4% or 6% the input exclusion would not apply. This correction we expect will be made this week, at a meeting on the 27th May, a 6% rate was agreed.
Measure 2: Working capital loans, ranging from Rs. 20 million to Rs. 250 million (based on turnover) under the Enterprise Sri Lanka scheme with a repayment period of 2 years with 75% interest subsidy borne by the government until 31st March 2020.
The loan scheme has not been finalized. It has been nearly a month since the government offered this concession. The finance ministry circular draft is silent on disbursement and repayment period.
Recommendation: Ministry of Finance to promptly confirm the scheme and grant at least one years’ grace period on repayments. It is important to note that this delay in finalizing this loan scheme reduces the interest rate subsidy period and detracts from the intended benefit. We also recommend that this loan scheme should be granted to the industry without imposing additional eligibility criteria (other than turnover threshold mentioned).
Measure 3 : Moratorium on Capital and Interest Repayments (applicable until 31st March 2020.)
Capital and interest falling within this period would be converted to term loans at concessionary interest rates. However, the guidelines issues by the Central Bank permits the individual bank to grant the moratorium as they see fit, instead of making it mandatory.
Recommendation: This we understand is to be shortly revised to be a blanket moratorium.
It is imperative that the government ensures this measure is applicable to all tourism institutions that find it difficult to repay.
Measure 4 : Concessions on security equipment imported
While details are yet to be formalized, we expect the government will waive applicable duty and all other import related taxes including PAL, NBT and Cess
Recommendation: Security equipment is important however intelligence needs to be relied on rather than brute force and fortress like security.
A concession that can be granted readily, within the authority of the Tourist Board is to suspend the 1% of revenue collected from hotels as the tourism development levy, for marketing primarily and also for admin. Given the substantial funds of LKR 5 billion sitting unutilised in the fund and the need for urgent relief, this could be a quick decision.
We urge the government to more effectively and broadly finalise the concessions to help protect the industry from the medium-term shock.