Govt. moves to bring OTAs into tax net as Booking.com talks begin

• Tourism Deputy Minister Prof. Ruwan Ranasinghe confirms discussion with Booking.com in Colombo, between 13 and 15 September
• Says over 50,000 properties listed online remain outside formal tax net, prompting urgent reform
• Targets to place OTAs under the SLTDA framework within six months, subjecting them to local levies
• Past attempts, including a 1% tax on OTA commissions in 2018, remain poorly enforced, widening gap
• Industry welcomes fair taxation, but warns overly rigid rules could disrupt global market access

By Charumini de Silva 

The Government is preparing for a decisive round of talks with global online travel giant Booking.com later this week, as it steps up efforts to bring online travel agencies (OTAs) and digital accommodation platforms into the country’s regulatory and tax framework.

Tourism Deputy Minister Prof. Ruwan Ranasinghe confirmed that representatives of Booking.com are expected in Colombo between 13 and 15 September, with discussions aimed at establishing a mechanism to ensure compliance with taxation and regulatory requirements. 

“The final discussion has not been confirmed yet, but we will conduct a meeting session later this week,” Prof. Ranasinghe told the Daily FT.

The move reflects renewed urgency to regulate a sector that has grown explosively in recent years, but remains largely informal. Authorities estimate that more than 50,000 properties currently listed on Booking.com alone fall outside the formal tax net. 

Prof. Ranasinghe said the Government expects to bring OTAs under the Sri Lanka Tourism Development Authority (SLTDA) regulatory framework within six months, a step that would also subject them to local levies.

However, efforts to tax OTAs are not new. In the 2017 the SLTDA had discussions with booking agencies to introduce a mechanism to collect taxes from the informal sector and standardise this thrust sector of the economy (https://www.ft.lk/Front-Page/Talks-to-tax-thriving-informal-tourism-sector/44-639683).

As a result, the 2018 Budget, presented by late Finance Minister Mangala Samaraweera, introduced a 1% tax on the commission earned from every online booking made through both local and foreign OTAs, including Airbnb and Booking.com. The measure, effective from April 2018, was welcomed by hotels, many of whom had argued that, while they paid 12% annual taxes on top of other business levies, OTAs operated abroad and were able to avoid local taxes entirely.

Although the mechanism was announced nearly eight years ago, enforcement has lagged and the rapid growth of the informal accommodation sector has widened the regulatory gap. 

The Government is now seeking not only to ensure compliance, but also to capture revenue streams lost to unregistered operators.

Tourism Minister Vijitha Herath recently hinted in Parliament that the Government may even consider developing its own national booking platform to rival international players such as Expedia, Airbnb and Booking.com. Although this reflects the Government’s appetite for tighter oversight, the proposal has divided opinion within the industry.

Many hoteliers support bringing OTAs under formal taxation, arguing that the informal sector enjoys an unfair advantage by bypassing levies and standards that formal operators must comply with. 

“We are not saying that they should pay taxes as high as 30%, but a nominal percentage. They need to understand that the market share was built over the years by the formal sector, which has always complied with regulations,” one hotelier noted.

At the same time, stakeholders caution that overly rigid measures could backfire. OTAs play a crucial role in connecting Sri Lankan properties to global demand, particularly in niche and emerging markets. Imposing new taxes or restrictions without studying international best practices could disrupt an already fragile sector that is still recovering from multiple crises.

The rise of OTAs has transformed global travel distribution, supplanting traditional high-street travel agencies and empowering consumers to book directly online. Platforms like Airbnb and Booking.com have also accelerated the growth of homestays, an age-old concept modernised through technology into a fast-moving global phenomenon.

Industry voices stressed that Sri Lanka’s goal should not be to stifle innovation, but to ensure fair competition and minimum quality standards. 

“Tourism is a favoured sector of our economy. But the informal sector must pay taxes and meet regulations to ensure that basic standards are maintained. At the end of the day, we want our destination to thrive as a safe and welcoming country,” Ranasinghe said.