By Dhananath Fernando
Originally appeared on The Morning
The recent controversy over a sponsorship of approximately Rs. 104 million provided by the Sri Lanka Tourism Promotion Bureau (SLTPB) for an international broadcasters’ summit has sparked a political debate. Some are questioning this particular sponsorship, while others are pointing to similar sponsorships provided in the past.
However, the political arguments are taking our attention away from a much bigger economic problem. The real question is not whether one particular event should have been sponsored. It is how we collect money for tourism promotion, who decides how it is spent, and whether we have the right system to ensure that the money is spent wisely.
Unless there is evidence of wrongdoing, it is unfair to make allegations against anyone. Equally, pointing to similar spending in the past does not necessarily justify current spending. The fundamental problem is the structure of decision-making.
Who pays for tourism promotion?
Most Sri Lankans may not realise that they contribute to tourism promotion every time they travel overseas.
When you purchase an international air ticket to depart from Colombo, an embarkation levy of $ 60 is generally included in the ticket price. This is not a tax charged only from foreign tourists. Sri Lankans travelling overseas for education, employment, business, or holidays also contribute, subject to certain exemptions.
The levy is collected by airlines and remitted through the civil aviation authorities. Under the Tourism Act No.38 of 2005, one-third of the embarkation levy collections should go to the Tourism Development Fund (TDF).
At the current $ 60 rate, one-third amounts to $ 20 per passenger.
Interestingly, there have been questions about how much is actually transferred to the Tourism Development Fund. Earlier public references indicated that only $ 5 per passenger was going towards tourism. Whether this arrangement continues today requires proper verification. The authorities should publish a clear breakdown of how the $ 60 is distributed and how much actually reaches the fund.
The second source of funding is the Tourism Development Levy, charged from registered tourism businesses.
The usual rate is 1% of turnover. For smaller establishments with an annual turnover not exceeding Rs. 12 million, or quarterly turnover not exceeding Rs. 3 million, the rate is 0.5%. However, under the amendments introduced in 2018, the 0.5% levy is required to be remitted to the Consolidated Fund rather than retained for tourism promotion.
According to the Tourism Act, the TDF is allocated among four institutions. The Sri Lanka Tourism Promotion Bureau receives 70%, the Sri Lanka Tourism Development Authority receives 14%, the Sri Lanka Institute of Tourism and Hotel Management receives 12%, and the Sri Lanka Convention Bureau receives 4%.
In other words, this is money collected from travellers and tourism businesses under the law. It is not money that simply appears when someone requests a sponsorship.
Where does the money go?
The amounts involved are significant.
According to the Auditor General, the TDF recorded nearly Rs. 7 billion in revenue in 2024. However, the same audit identified approximately Rs. 2.6 billion that had not been distributed to the relevant institutions by the end of that year. There were also difficulties in identifying and reconciling some deposits.
These observations do not establish corruption. But they certainly raise questions about the efficiency of managing the fund.
There is a sound economic argument for having a common fund to promote tourism.
For example, if one hotel spends its own money promoting Sri Lanka internationally, the benefits will not be limited to that hotel. Other hotels, restaurants, tour operators, taxi drivers, and many small businesses can benefit.
As individual businesses cannot capture the entire benefit of promoting Sri Lanka, they may not invest enough in promoting the country as a destination. Having a common fund can help address this problem.
Deciding how the money is spent
However, collecting money through a common fund creates another economic problem. The people who contribute to the fund are not necessarily the people who make the final decisions on how it is spent.
This is where incentives become important.
The SLTPB already has a governing structure comprising representatives from both the public and private sectors. However, large expenditures can require approval beyond the bureau. In the recent sponsorship, Cabinet approval was obtained, reportedly because of the amount involved.
The concern is that professional marketing decisions can become subject to political discretion.
This does not mean that every decision taken by the Cabinet is wrong. The problem is that when the decision-making process allows considerable discretion, even decisions made with good intentions may not deliver the best economic outcomes.
Tourism promotion is also a particularly difficult area for evaluating expenditure.
If we spend Rs. 100 million constructing a building, we can physically inspect the building and assess its value. But when we spend Rs. 100 million on a promotional campaign, evaluating the return is far more complicated.
An international conference may bring delegates, hotel bookings, and exposure to Sri Lanka. But the estimated media value of an event is not necessarily the economic return generated by that event.
The important questions are whether the promotion reached potential tourists, whether it encouraged additional visitors, and whether another promotional activity could have delivered better results for the same amount.
That is why tourism promotion requires professional marketing expertise, competition among service providers, and clear measures of performance.
Unfortunately, Sri Lanka has struggled for years to launch a sustained global tourism promotion campaign. One of the major challenges has been the Government procurement process.
This creates an interesting contradiction. We struggle to execute large, professionally planned promotional campaigns because of bureaucratic challenges, while individual sponsorship proposals can become subjects of political debate.
The solution is not to remove procurement safeguards. It is to develop procurement procedures suitable for tourism promotion, advertising, and digital marketing while maintaining transparency and competition.
Reforming the system
More importantly, the management of the TDF requires reform.
The collection and distribution of funds should be publicly available. The criteria for approving sponsorships should be established in advance. Professional marketing teams and industry representatives should have meaningful authority within approved budgets, together with clear conflict-of-interest rules and independent oversight.
Major promotional activities should be evaluated against agreed targets, with the results made public.
We should also remember that private sector participation alone does not guarantee good decisions. Businesses can have their own interests. That is why transparency, competition, and accountability are equally important.
A real system change is not about replacing one set of individuals with another. It is about designing a system where there is less room for arbitrary decisions, regardless of who holds political office.
We can investigate individual decisions where there are credible concerns. But investigations alone will not correct the weaknesses in the system. If the structure remains unchanged, the same problems can continue under different governments and different officials.
Sri Lanka needs to move away from a system that depends on the goodwill of individuals towards one where good decisions are encouraged by the rules themselves.
The objective should not simply be to spend the money allocated for tourism promotion. It should be to get the best possible economic return from every rupee collected.
That is the real reform Sri Lanka’s tourism industry needs.
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