Isolation irk for tourism

Despite Budget 2011 proclaiming tourism as a thrust sector, the Government appears to have failed to walk the talk as the leisure industry has been dealt a deadly blow with the highest electricity tariff from next year.The hotel industry has been singled out or isolated from the rest and the tariff proposed to be effective from January to June 2011 ranges from Rs. 19.35 to Rs. 19.70 per unit.

  This is in contrast to other industries which enjoy a lower tariff as well as a three tiered structure, which tourism had also requested.

Tariff for the hotel sector has been classified as 1, 2 and 3 with Rs. 19.50 per Kilo Watt Hour (kWh) for Category 1, Rs. 19.70 for Category 2 and Rs. 19.35 for Category 3.

The tariff for other industries is lower. For customers under Category Industrial 12 the peak rate is Rs. 17, off peak Rs. 9 and day time Rs. 12 whilst for those in Category Industrial 13, peak rate is Rs. 16.50, off peak Rs. 8.70 and day Rs. 11.50. In Industrial 11 category the flat rate is Rs. 11.50 per unit.

These rates have been notified by the Public Utilities Commission of Sri Lanka (PUCSL), whilst calling for written representations on those.

The tourism industry is furious over the new tariff which in comparison to the current Rs. 9.30 per unit reflects a massive, over 100% increase. They also alleged that contrary to industry-PUCSL discussions, tourism hasn’t been provided with a three tiered structure either.

The industry has requested the Government to seriously reconsider the move of isolating the hotels and slapping high tariffs.

“We don’t want hotels to be classified separately in isolation. The proposed increase will also certainly cripple the tourism industry,” hoteliers and tourism industry leaders warned, adding that the move would discourage setting up of new hotels, which is critical to better serve the anticipated boom in post-war tourist arrivals.

The Government thinking appears that hotels are enjoying record yields following the imposition of minimum room rates as well as strong rebound in tourist arrivals.

However, leisure industry experts warned that Sri Lanka was notorious for already having the highest electricity tariff and a 100% increase would make operations unviable. They also said that feasibility of several new hotels planned by the industry was based on old tariff and factoring a reasonable increase.

“The proposed rates make such new ventures highly unviable,” they claimed.

The country needs tripling of rooms from the current 15,000 in the next five years if the Government’s target of attracting 2.5 million tourists by 2016 is to become reality.

The previous move by the Government to place hotels under a standalone category saw the industry seeking legal action, after which it was deferred.  Most analysts feel that if the Government doesn’t revisit its proposed high tariff, the industry will be forced to go to courts as a last resort yet again.

“We requested a cost-reflective tariff structure for the next five years along with a three tiered mechanism. However, the Government appears to be insensitive to our constructive suggestions,” the hoteliers added.

The move comes hot on the heels of the tourism industry welcoming President Mahinda Rajapaksa’s 2011 Budget.  In that context, most in the industry alleged that the new tariff was a U-turn on the part of the Government as well as clear failure to walk the talk.

Based on industry projections, the tourism industry is forecast to be a US$ 2.5 billion by 2016 employing 1.2 million directly (nearly four million indirectly).

The President in his Budget 2011 presentation said: “Sri Lanka has immense prospects in generating income and employment from tourism. Tourism should be a billion dollar business. Although tourist arrivals have picked up and expected to be around 600,000 this year, earnings from tourism shows only a moderate increase. This is largely because the industry as a whole is underpriced.”

In view of this, he proposed to impose a levy of US$ 20 per bed on all five star hotels which charge a room rate that is less than US$ 125 per night from January 2011 in order to compel all hotels to charge better rates.

He also proposed to reduce tax on income earnings from tourism and related business from 15 percent to 12 percent. Hotels with a star rating above three stars will however be liable to pay NBT of 2%. This is in addition to reducing duties and taxes on passenger transportation vehicles by 25 per cent.

Other incentives included increased tax deductable expenses, including higher capital allowances for new investment, reduced Customs duty on selected goods and raw materials and simplification of approvals from the Urban Development Authority (UDA).