Tanzania Tourism Industry Worry About VAT On Services

Tanzania's tourism industry may be in for a rough year ahead should proposals for adding Value Added Tax on tourism services be sanctioned by parliament in Dodoma, where Members of Parliament now debate the Finance Bill for the next financial year.

The 18 percent tax, if implemented, would apply for any service rendered, from park fees to transport and from tour guide services to game drives, making packages for safaris in average 20 percent more expensive - due to the regular rounding up practice - for such components.

In neighbouring Kenya was the 16 percent VAT removed in the current budget for the same services - Kenya had introduced VAT on tourism services three years ago - after it was finally recognized that the move had a devastating effect on arrival numbers and revenues, forced job losses in their thousands and had tourists opt for cheaper safaris, notably in Tanzania.

Even in Uganda was the introduction of an 18 percent VAT on the services of safari lodges and resorts leading to a sharp downturn in business, with in particular UHOA, the Uganda Hotel Owners Association, recently presenting statistics that occupancies for such properties had fallen to near record lows as a result, between 17 and 24 percent depending on location.

However, Tanzania's Finance Minister in a grave error of representation, claimed because neighbouring countries had introduced and retained VAT he too had a case, conveniently overlooking the fact that Kenya had just scrapped it and that Uganda was working on removing VAT on tourism services to halt the decline.

The Tanzania Association of Tour Operators and also the Hotel Association of Tanzania, in short HAT, have strongly condemned the plans of the government to add VAT as it would outprice the destination, already struggling with a weaker than expected world economy and subsequent downturn in travel spending from key markets.

It is expected that in a reversal of fortunes safari seekers will now once again shift their business to neighbouring countries where the tax has just been removed, leaving Tanzania's tourism sector to face the music to which clearly the bureaucrats in the Finance Ministry are deaf.
The matter of taxation has also been of concern to the African Airline Association, in short AFRAA, which has been fighting an uphill battle with East African and generally African governments over the level of airport taxes, taxes on aviation fuel, spare parts and other key services. IATA too has taken issue with the level of taxation on aviation services and tickets, which in Africa has led to traffic volumes far from the continent's potential.

It is understood that Tanzania's tourism industry was seeking to enlist the support of their home ministry, as did the Ugandan tourism sector, to convey the message to their respective parliaments to review taxation proposals for the sector and reduce or scrap rates in order to stimulate sustained sector growth which will lead to tax gains in other areas.

Source: eTN