Sri Lanka is engaged in discussions with the International Monetary Fund (IMF) to explore the possibility of exempting destination management companies (DMCs) from value-added tax (VAT).
Tourism Minister Harin Fernando revealed the discussions, emphasizing the need to prevent the cancellation of previously confirmed bookings resulting from the recent tax hike.
Hotels in Colombo and other locations are reportedly booked up to 80 to 85 percent capacity until April, with reservations extending as far as October, according to officials. Minister Fernando, addressing reporters on Thursday, highlighted the challenge of managing bookings, especially for the period from zero to 18 years, as commitments have already been made until October 2024.
To navigate the tax implications, there is consideration for external transactions, although Minister Fernando cautioned against potential risks, such as the creation of offshore accounts. The Minister expressed concern, stating, "If the DMC companies do not bring the money into Sri Lanka and put them elsewhere and make the payments elsewhere, then this whole concept will fall apart in relation to taxes."
It is noted that DMC firms were exempt from the tax in the past. Sri Lanka Tourism Promotions Bureau Managing Director Nalin Fernando stressed the importance of ensuring that remittances are directed back into the country to maintain the integrity of the tax-related framework.
