19th October 1997

Tourism heads call for export trade status

"Export potential of tourism comes from the sale of goods and services to people who are not residents of the country. Its distinguishing characteristic lies in the fact that it is the consumer, and not the product, which changes place."

By Imran Vittachi

The government is moving to accord wider external trading privileges to tourism operators who are lobbying for full export status, the head of the Ceylon Tourist Board said recently.

According to CTB's Chairman, H.M.S. Samaranayake, the national tourism industry already enjoys a range of concessions — such as a zero-level rating on Business Turnover Tax for hotels and travel agencies — but other incentives and benefits are now afoot.

"The scheme has been approved, and is about to be implemented, for duty-free concessions on the import of goods for the refurbishment and upgrading of hotels," he told Sunday Times Business . "We are also awaiting approval of the scheme for duty-free concessions on import of vehicles."

Captains of tourism in Sri Lanka are, nonetheless, pressing all the trimmings enjoyed by exporters in lucrative industries like textiles, tea, and rubber. They want a "level playingfield", a whole range of incentives and benefits to launch their products and services internationally. To this end, they see a reduction in corporate tax rates and the facility to open foreign currency bank accounts, among other concessions, as indispensable to Sri Lanka's survival in the face of ever-stiffening global competition.

"The rationale for granting favoured treatment to exports is that exports have to compete in the international market," Gilbert Jayasuriya, Chairman of the Tourist Hotels Association of Sri Lanka, said at the recent graduation in Colombo of the Ceylon Hotel School. "International tourism also has to compete fiercely in the international market, and in this regard, tourism is identical to other exports."

Mr. Jayasuriya and others argue that theirs is not a trade of domestic consumption, and should therefore be exempt of any future Goods and Services Tax.

"Export potential of tourism comes from the sale of goods and services to people who are not residents of the country," he said on Sept. 25. "Its distinguishing characteristic lies in the fact that it is the consumer, and not the product, which changes place."

"General services tax is expected to replace business turnover tax, but we are told by the tax authorities that hotels cannot be exempted from GST," he added. "This would mean an additional burden of up to 16 percent for an ailing industry."

Leading private operators in the tourism trade — hotelliers in particular — welcome such concessions as relief for the burden of paying off debts in their capital-intensive industry.

"In the last few years, Aitken Spence has invested over Rs. 2 bn in tourism — hotels, procurement of vehicles, etc. — and we are borrowing this money at very high interest rates," Manil De Mel, Managing Director of Aitken Spence Travels Ltd., told the Times.

"Because of the political problems here, the rates we have to charge our tour operators have to be reasonably low and attractive, or people will not come to Sri Lanka. So if all these concessions are granted we can plough money back into the tourism industry. The costs of building and expanding will be much less to us."

To De Mel, however, this is just one way to boost tourist arrivals to Sri Lanka. In his view, the private and public sector will need to take stock of the realities of global tourism as the next millennium approaches, otherwise Sri Lanka risks remaining a dot in the Indian Ocean. As automation gradually replaces manual labour, people will have more time for leisure, he says, so there will be a greater demand for affordable travel.

"By the year 2000, if not now, the tourism and leisure industry will be the single largest industry in the world," he said. "The industry will grow, because machines are basically going to do a lot of work, and human beings who produce these machines will have more leisure time on their hands."

According to De Mel, the country will have to be much more aggressive in selling its splendours to worldwide travellers. They are now increasingly drawn from a social mix, and are also originating from newly emergent economies like India, where 28 mn and 300 mn respectively constitute the upper and middle classes, he said.

"After 25 years of tourism in Sri Lanka, the government has just decided to launch an image-building campaign by spending," De Mel said. "Now to spend $2.5 mn, which is about Rs. 150 mn, is a good thing, but it is inadequate to meet the needs of the industry. The industry reaps about 12 billion rupees."

De Mel is convinced that another way to lure more tourists to the country is to continue to increase the number of charter flights here, without denting the services of scheduled carriers.

This is especially so considering the United Kingdom, Sri Lanka's most important source of tourists, whose travel industry is dominated by charter tour operators, he said.

According to a recent study done by Aitken Spence, the top ten worldwide tour operators in the UK "operate mainly on charter flights," and even own fleets of aircraft.

In the study, charter and scheduled passengers loads from 1995 to 1996 to longhaul destinations similar to Sri Lanka were compared.

"In some destinations, growth on schedule flights is higher, and in some destinations, growth on charter flights is higher...," the study concluded. "Charter flights do not result in reduced business for scheduled flights."

In Egypt, for example, the growth in scheduled and charter flights was 18 percent and 36 percent respectively; and in India, this was at 12 and 24 percent.

But not everyone in the tourist trade believes that adding to the number of charter flights to Sri Lanka is such a healthy prescription.

"In the long run, what is required for the country is more and more scheduled carriers operating here," said Udaya Nanayakkara, President of the Travel Agents Association of Sri Lanka. "If we arbitrarily increase capacity, British Airways and other scheduled airlines may withdraw their services."

Care must be taken, he said, because scheduled carriers invest year round in all their destinations. And the seasonal nature of charter travel puts the local tourist industry into a precarious position, he said. Charter operators could pull out of Sri Lanka as they please, especially if a bomb were to go off in the heart of Colombo.

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