Sri Lanka tourist VAT refund to draw luxury retail investments, shoppers

The new value added tax (VAT) refund scheme for tourists could help draw investments by international retailers to Sri Lanka as well as foreign visitors keen on shopping, Finance Minister Mangala Samaraweera said.

“The tourist VAT refund scheme is a 2018 Budget proposal which will provide a significant boost for the tourism sector and the retail sector,” he said.

Neighbouring countries including Thailand and Singapore have become regional shopping centres using VAT-free shopping, Samaraweera said at the opening of the Tourist VAT Refund Scheme (TVRS) at the Bandaranaike International Airport Tuesday.

“Year around, tourists would visit increasingly for the sole purpose of shopping, and international retailers have as a result invested heavily in these countries.”

The TVRS will enable Sri Lankan goods to have greater exposure to the global market, bringing with it several positive economic spill overs.

“Sri Lanka has similar potential to exploit such opportunities, particularly considering its significant tourism assets over above shopping and retail,” Samaraweera said.

“The TVRS has a particular importance for enhancing the attraction of Colombo as a destination. Today most tourists tend to bypass Colombo for attractions outside of the capital city.”

“But with the opportunity for VAT free shopping, tourists will have more reason to spend time in Colombo,” Samaraweera said.

“Trends in other cities show that tourists that visit destinations for the sole purpose of shopping tend to spend significantly more than their counterparts that visit the rest of the country and they tend to stay at the destination longer than traditional tourists.”

The TVRS could also have benefits in terms of enhancing tax compliance.

“More firms will be incentivised to register to claim the privileges, thus improving formalisation of the economy,” Samaraweera said.

“I expect the TVRS to provide a significant incentive for luxury retail operators in Sri Lanka. There are already a number of shopping destinations with major global brands beginning to establish in Sri Lanka – and this trend can only benefit and further expand with the tourist VAT refund mechanism. We look forward to seeing enhanced investments from this sector.”