Transparent Investment, Taxation, and Incentives in Tourism Projects
Frontpage Journal | July 2025
Tourism has long been touted as a fast-track path to economic recovery and foreign direct investment in Sri Lanka. It accounts for a significant share of the island’s GDP, employment, and export earnings. But behind the glossy headlines and promotional campaigns lies a critical question that remains unanswered. Where does the money actually go? Who benefits from the influx of tourism capital, and at what cost to the public purse?
The conversation around transparency in tourism finance is overdue. For decades, the sector has operated with limited fiscal visibility, allowing investment incentives, tax holidays, land grants, and infrastructure subsidies to flow to private developers with little accountability or public scrutiny. As Sri Lanka attempts to rebuild its economy amid debt distress and dwindling revenue streams, the tourism sector must not be treated as a sacred cow. Instead, it must be reimagined as a site of fiscal responsibility, shared prosperity, and strategic investment.
One of the most opaque areas is the allocation of tax incentives. Investors in tourism projects often receive sweeping concessions under the Board of Investment or Strategic Development Projects framework. These incentives include multi-year tax holidays, duty-free imports, and fast-tracked approvals for land use and construction. While such concessions are justified as a means of attracting capital and generating employment, there is scant data on whether these projects deliver the promised benefits. Many fail to meet job creation targets, do not reinvest profits locally, and remain disconnected from domestic supply chains.
The Sri Lanka Tourism Development Authority maintains a registry of tourism projects, but it does not disclose financial performance, tax contributions, or compliance with agreed investment terms. Without this transparency, policymakers and the public are unable to assess the return on investment for the country. This absence of accountability is particularly problematic in cases where state land is leased or infrastructure is subsidized. Public resources are being converted into private assets with minimal oversight.
Moreover, the issue of profit repatriation remains largely unaddressed. Many high-end resorts and hotel chains are foreign-owned, and a significant share of their earnings is sent abroad. This limits the multiplier effect of tourism revenues within the local economy. While local employment is often cited as a benefit, many jobs are low-wage, seasonal, and disconnected from long-term wealth creation. A more nuanced approach is needed, one that encourages domestic entrepreneurship, incentivizes local procurement, and ensures that a larger portion of value remains within national borders.
To build fiscal resilience and equity in the sector, Sri Lanka must establish a transparent public investment dashboard for tourism. This platform should disclose all approved tourism projects, their incentive packages, employment commitments, land use terms, environmental compliance status, and annual tax contributions. Similar systems have been adopted in countries like Costa Rica and Botswana, where tourism plays a key economic role. Transparency does not scare away investors. It builds credibility and reduces the perception of corruption or favoritism.
Reforming the incentive regime is also essential. Tax breaks should be linked to performance metrics that are independently verified, such as local job creation, gender inclusivity, community investment, and sustainability certification. Investors who fail to meet these benchmarks should face clawbacks or disqualification from future benefits. Rather than broad-based exemptions, a tiered incentive system could be introduced, where the depth of tax relief is tied to the depth of social and environmental value delivered.
Public-private partnerships must also be recalibrated. In several coastal infrastructure projects, the public sector bears the cost of access roads, water supply, and power lines, while the private operator retains the revenue. Such models are economically inefficient and politically unsustainable. Where state support is extended, profit-sharing mechanisms should be explored. Community trusts or local government shares in tourism revenue could create a more inclusive model of development.
In parallel, the taxation of digital tourism services must be brought into focus. Online booking platforms, tour aggregators, and short-term rental apps now capture a growing share of the tourism economy, often without paying local taxes or contributing to regulatory oversight. Sri Lanka must update its tax code and licensing frameworks to reflect this digital shift. A tourism e-tax system, already in use in Thailand and parts of Europe, could ensure that these platforms contribute fairly to the national treasury.
From a governance standpoint, the centralization of tourism investment approvals should be balanced by independent audit and civil society participation. Parliamentary oversight committees, public hearings, and investigative journalism all have a role to play in holding both public and private actors accountable. The involvement of professional associations, chambers of commerce, and environmental watchdogs can improve compliance and prevent rent-seeking behavior.
Investment in tourism should not be framed as a race to the bottom. The goal is not to offer the cheapest land or the longest tax holidays. It is to create a high-value, resilient, and inclusive sector that attracts responsible investors, respects public resources, and delivers long-term dividends to the nation. This is particularly important as Sri Lanka competes with destinations like Vietnam, the Maldives, and Indonesia, each of which has begun tying tourism incentives to sustainability outcomes and community development indices.
In an era where climate risk, debt stress, and inequality shape the contours of economic planning, the tourism sector cannot remain financially opaque. Transparency is not a bureaucratic hurdle. It is a strategic imperative. Only by following the money can Sri Lanka ensure that its beaches, heritage sites, forests, and cultural assets are not sold short. Only by reforming its incentive systems can the country transition from volume-driven tourism to value-led growth.
If tourism is to serve as a cornerstone of national recovery, its finances must be open to public view, its benefits broadly shared, and its future built not on secrecy but on strategy.
