The article describes the negative impact of poverty alleviation in tourism of Sri Lanka based on secondary and time series data that were gathered by Sri Lanka Tourism Development Authority from 1968 to 2014. Additionally, secondary data from Department of Census and Statistics in Sri Lanka and Central Bank of Sri Lanka were employed in the study to examine the key objective. The key objective is to discover potential obstacles against the tourism development as an instrument of poverty alleviation while reviewing the research question that how to improve poverty elimination via tourism development. Pearson correlation analysis and descriptive analysis are used. The study suites two suppositions to accomplish the above mentioned objective focusing empirical evidences. Firstly, there are obstacles to develop tourism industry in Sri Lanka. Secondly, the obstacles affect poverty alleviation via tourism development in Sri Lanka. However, findings of this study reveal that significant relationship between tourism development and poverty alleviation has being damaged by obstacles. We conclude that tourism is a proper instrument to move out from poverty and disparity and suggest that potential obstacles should be managed via tourism development strategies. Therefore this study stimulates for policy makers to refer the present tourism policy and add alternative solutions to unfold issues in Sri Lankan rural tourism industry. Significance of this study is notlimited to Sri Lanka and under the limitations; findings, suggestions and conclusions of the study can be utilized to develop rural tourism based national plan in developing world.