Tanzania struggles to impose VAT on tourism industry

Tanzania struggles to impose VAT on tourism industry

Tanzanian government is under pressure from international tour operators to recall the new VAT for tourism services.

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Background

The tourism industry not only contributes almost 10% to the country’s gross domestic product but it is also a major employer. As a sector, its growth has been meteoric, increasing from $1.74 billion in 2004 to an impressive $4.50 billion in 2014. The most popular destination is the Serengeti National Park and this is where the vast majority of the tourists visiting Tanzania go following their arrival in the country.

Safari business

Due to its abundant and diverse wildlife and breathtaking landscapes, Tanzania has in the past been voted the “Best safari country of Africa”, however the industry has been thrown into chaos by the governments recent decision to apply a VAT (Value Added Tax) of 18% on all tourism services.

The government has said that the decision on introducing the new tax is due to the reduction in hunting tourism which has left a gap of funds that needs filling. They have also stressed that the decision was only made after careful planning and that a significant percentage of the additional funds would be used to fund free education and health services.

Tour operators appeal for the government to reconsider

Tour operators are already paying over 32 different taxes and have appealed for the government to rethink their decision, saying that it will overburden them and make it almost impossible for them to remain competitive in what is already a very competitive industry. They fear that this could result in them losing business to neighboring countries whose tourism services are exempt from VAT.

Kenya learned this lesson the hard way when the government there added VAT to their Tourism services in 2015, only to have to reverse this decision in their 2016/2017 budget following a significant drop in Tourist numbers.

Sirili Akko, the Executive Secretary of TATO (Tanzania Association of Tour Operators) said “Kenya learned a hard lesson in 2015 when it imposed VAT on tourist services, thanks to a quick rebound which seeks to restore their competitiveness and glory in the tourism sector,” adding “Tanzania should avoid the same mistake, otherwise our neighbors will capitalize and have a free ride on our mistakes.”. He later went on to say “Charging VAT on tourist services will make them expensive and place the Tanzanian tourism industry in a disadvantaged position due to regional and international parities. This works against the government goal of increasing tourist numbers to 2 million in 2017”.

European tour operators

At the beginning of July, a number of European tour operators told the Tanzanian government that unless they lifted the newly applied VAT, they would rebook all of their clients trips to alternative African countries.

A significant number of cancellations have already been reported by some Tanzanian tour operators, in fact since the new VAT on tourism services was imposed on July 1, vacations totally $660,000 have been cancelled.

Government agrees to further discussions

On July 15 the government said that is was open to having further discussions with key players from the Tanzania Association of Tour Operators, however they did not go as far as to say whether or not the government was actually seriously considering abandoning the new tax, despite the fact that tour operators believe the tax will have a devastating effect on the tourism sector.

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