Sri Lanka’s tourism industry has been struggling for the past four years, with a drop in tourist arrivals in 2019 and the COVID-19 pandemic. However, a concerted promotional drive to attract foreign visitors, aided by geopolitical tensions, appears to be bearing fruit, offering the nation an engine of revenue that could play a pivotal role in helping Sri Lanka’s economy recover. In 2023, Sri Lanka recorded more than 1.3 million tourist arrivals by the second week of December, the first time arrivals have crossed the 1 million mark in four years. More than 150,000 tourists visited in November, the highest monthly tally since March 2020.
The majority of tourists who have visited this year are from India, which hosted three roadshows promoting Sri Lanka’s tourism sector in April. The Russian war in Ukraine has also helped Sri Lanka, as Russia is the second-highest source of tourists to the country this year, at a time when Russian tourists are not welcome in many other nations. President Ranil Wickremesinghe has urged the tourism sector to improve its products and services to cater to high-end tourists.
From January to November, tourism contributed $1.8bn in revenue, an increase of 78 percent compared with the same period last year. Tourism is Sri Lanka’s third-largest source of foreign exchange. On average, a tourist spends $181 daily, according to government data. Suranga Silva, a professor in tourism economics at the University of Colombo, suggested that Sri Lanka could use its uninhabited islands to boost high-end tourism by offering exclusivity. Research published in 2018 identified at least 87 islands in Sri Lankan territory. Many are neglected and can be used to develop tourist resorts, bird sanctuaries, and scenic attractions.
In 2021, the World Economic Forum ranked Sri Lanka 74th among 117 countries on its Travel and Tourism Development Index, which measures factors and policies that enable the development of the travel and tourism sector. Fernando, the tourism authority chairperson, conceded that there is no advantage for any foreign investor to invest in Sri Lanka. He believes it will be 2029 by the time we receive 5 million tourists, of which half at least spend $500 a day.
However, many businesses in the sector fear that the government is weakening their ability to compete for global travellers. From January 2024, the Sri Lankan government will lift an exemption on value-added tax (VAT), which it had extended to tourism operators in 2020. Sri Lanka’s parliament recently voted to increase VAT from 15 to 18 percent, adding to the concerns of the sector.
Businesses catering to tourists are already paying a Tourism Development Levy, Income Tax, and Turnover Tax. When all these taxes are imposed on them, their production costs go up, making Sri Lanka an expensive tourist destination. The tourism sector is also asking the government to provide relief on their mounting debt and the multiple electricity and water tariff hikes imposed since last year.
The mass migration of Sri Lankans to other countries in search of jobs has also hurt the tourism industry. The Sri Lanka Institute of Tourism and Hotel Management (SLITHM) is conducting training programs that require participants to work in the local hospitality sector for a year to receive their certification.