Tourism authorities tighten grip on informal sector

By Chandeepa Wettasinghe
Sri Lanka’s Tourism Development and Christian Affairs Ministry will begin actively enforcing the provisions of the Tourism Act No. 38 of 2005 with regard to the informal sector operators who have not registered their businesses with the Sri Lanka Tourism Development Authority (SLTDA).
The SLTDA announced that it would be setting up an Enforcement Unit to tackle the unregistered service providers.

“Any tourist enterprise or tourist service carrying on business without being registered or who have not been issued with a licence will be guilty of an offence under the Tourism Act. Therefore, the Sri Lanka Tourism Development Authority is going to establish an enforcement unit under the legal division in order to address the above-mentioned requirement,” it said.

Anyone found guilty of violating the Tourism Act is liable to a maximum fine of Rs.200,000 and/or a maximum prison sentence of two years.

A significant portion of unregistered businesses are homestays, hostels and small businesses that are taking advantage of the rise of sharing economy digital platforms such as Airbnb and may not be aware of the legal requirements they need to fulfil.

Approximately a quarter of foreign guest nights in Sri Lanka were in unregistered accommodation units over the past few years, attracted by authentic experiences and lower prices.

The hotel lobby, facing stiff competition from unregistered businesses, has taken up arms against the informal sector, charging them with not paying taxes and other government levies.

Some informal businesses are registered with their respective local governments and pay local taxes. The Tourism Development Ministry officials have confirmed that due to the small size of these enterprises, most of them do not fall into the income brackets required to be liable for national taxes and levies.

The 2017 budget proposed to introduce such taxes to these small informal enterprises as well, although the proposals have not yet been legislated.

Some laws in Sri Lanka are not enforced to promote social justice.

The SLTDA too, after taking an initial aggressive stance against the informal sector, was thought to have mellowed its views in recent months, due to its statements that its goal is to help the informal sector businesses to improve their business standards and help them register. The government now appears to be waving the stick without providing a big enough carrot.

Despite the perceived low standards compared to mainstream hospitality, proponents of the sharing economy and digital platforms say that the customers usually know what they are getting into due to self-regulation of such economies through coveted peer reviews and that the government shouldn’t intervene excessively and impede the economic progression of these low-income groups.

What benefits the current informal sector would gain from being registered is therefore, debatable. 
Large hotels however do gain the benefits of the prestigious star ratings and political support to protect their businesses after they register.

Most of the government support is going towards hotels, which are benefitting from a minimum room rate in the capital Colombo as well as subsidized loan schemes, despite criticism that their service standards have fallen and that they are not paying their workers enough.