Tanzania Introduces Value-Added Tax to Tourism Services

The Untold Story of Value-Added Tax On Tourism in Tanzania

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If you talk about the introduction of the disputed value-added tax (VAT) on tourism services, the majority of people would remember last month’s Budget Speech which made it official as delivered by Finance and Planning minister Philip Mpango.

But for Mr Richard Rugimbana, the executive secretary of Tanzania Confederation of Tourism (TCT), the discussion will start by recalling back in 2014 when the VAT bill was debated in Parliament.

The would-be law imposed the VAT on the travel industry but it was scrapped when the lawmakers expressed their worries and effects that might hurt the sector and ultimately they influenced the government to revert its plan.

Mr Rugimbana remembers the heated debate which at the end of the day made the then Finance minister, Ms Saada Mkuya, to put on hold the tax and the government agreed to first support leveraging the sector growth.

“I have that Hansard which quotes her suspending the VAT on tourism and then they agreed to raise the sector to a reasonable growth rate before introducing the same,” says Mr Rugimbana who was surprised by the coming again of the tax just two years later.

When the MPs passed the bill into law, supply of tourist guiding, game driving, water safaris, animal or bird watching, park fees, and ground transport services were exempted from the VAT.

Tourism ‘to lose Sh2tr’ as VAT bites

The just introduced VAT is expected to increase cost to tourists, operators who have clients booked before and probably create negative image about predictability of the market.

As a way to leverage the potential of tourism in Tanzania, a task force was formed by members from both the private and public sectors in 2013 to prepare a report that identified the existing challenges and recommend possible solutions.

The report contained seven pillars of the challenges that Mr Rugimbana says were presented to the head of state when he met representatives of the business community last December; Natural Resources and Tourism Minister Jumanne Maghembe in January and later handed to Finance minister Mpango.

“At this point, were sitting as we eagerly wait to see tourism challenges are contained in the lab of Big Results Now (BRN) as we agreed. The ministers also assured us of that. Contrary to our expectations and agreement, we are surprised by the introduction of the VAT which I think accelerates challenges from seven to now eight,” says Mr Rugimbana.

“What kind of solution does the VAT provide to the current tourism challenges? Why is it that abrupt while we understand that tourists book even twelve months in advance?” he questions.

What the report says

The Tourism Task Force prepared the report which identified challenges that it said would double the growth if addressed.

Currently, the sector grows at an average of 9 per cent but once the challenges are addressed, it will grow by about 20 per cent per year, he says.

In 2013, Tanzania was listed in the World Bank’s Africa Tourism Report as one of the five countries with the highest potentials for tourism. Others include Botswana, Cape Verde, Namibia, Namibia and South Africa.

The government also aims at leveraging the tourism revenue growth from the current average of $2 billion per annum to $16 billion by 2025 and increase jobs from about 500,000 to 900,000 in the same period.

However, the task force identified the seven issues that limit the realisation of the potential of the tourism sector.

These include incoherent policies, institutions and policies; inadequate vision for the sector; inadequate marketing and branding; limited tourism infrastructure; multiplicity of taxes, levies and fees; skills gap and restrictive labour laws; and wanton destruction of natural assets.

Tour operators call for JPM intervention

Destruction of natural assets

The report mentions poaching of wild animals; dynamite fishing; encroachment of protected areas; and desertification as some of the threats to Tanzania tourism in both land and waters. The taskforce recommended to bring back ‘Operation Tokomeza’ and declares those illegal activities as national security threats.

The team report also suggested having public-private partnership in managing tourism resources and having stiff laws in place to fight against environmental crimes and corruption in the sector.

Skills gap and restrictive labour laws

The report says there is a skills gap between the tourism industry requirement and the kind of training provided by the institutions.

It says the government should reduce the skills development levy (SDL) from the current 4.5 per cent to 2 per cent as incentive to the private sector which is ready to address the shortcoming.

The report also suggest Tanzania to have prompt processing and issuing of work permit for key professions that are not available locally; to balance labour laws and avoid over-protection of the employees; and develop the National College of Tourism into a centre of excellence.

Multiplicity of taxes

The report states that tourism levies, licences and fees range between 10 and 115 which have stringent procedures for one to enter, and they are not predictable.

It recommends harmonization and streamlining the taxes; allow a minimum period of 12-month notice and consultations before introducing changes in the charges; and reduce the VAT rate to the East African region’s average of 17 per cent.

Tourism infrastructure

The report proposed a tourism development programme to fast-track investment and PPPs in infrastructure to expand tourism to all conservation areas.

It said the infrastructure is still underdeveloped especially in the Southern Circuit and Western Tanzania. The report proposed privatization of airstrips construction; PPP in management of airports for efficiency and quick investment; survey and allocate land bank for tourism investment; and invite private hotel investors to Tanzania airports.

Quality branding

The report states that the current marketing strategy in focused on just four major protected areas which are generating about 80 per cent of the government tourist revenue.

They include Serengeti, Ngorongoro, Manyara and Kilimanjaro while the country has more attractions.

The report suggests having new marketing strategy; fast track PPPs in wildlife management; lower off-season park fee; and increasing private sector representation in all tourism public sector boards.

It also proposes privatisation of the national airline through PPP; reduce visa processing time from 1.5 hours to 15 minutes; and introduce a tourism information desk in all major airports in collaboration with the private sector.

Need for a new vision

The report says the 15-year-old policy requires update and that Tanzania does not have a long-term development programme for the sector.

It also explains that the organization of the sector is complex, fragmented and lacks coherent strategy.

The document proposes review of the tourism policy, act and regulations to make them more facilitative; develop a 10-year programme; include tourism in the BRN; and introduce a mandatory Regulatory Impact Assessment for all new regulations, taxes and fees to be introduced.

What happens after VAT introduction?

After the government announced to endorse the VAT on tourism services effective July 1, 2016, the market reacted differently.

While some tour operators cried of increased extra costs for travellers who booked earlier, others claimed that it would be difficult to sell “unpredictable destination Tanzania.”

Ms Carmen Nibigira, coordinator of the Nairobi-based East African Tourism Platform (EATP) shared a few of the messages she received from foreign tour operators.

“Today, I contact you in an official case: the introduction of VAT in Tanzania and the increase of fees for Ngorongoro. The Tanzanian tour operators and we as travel agents in Germany have a very big problem,” said one of the operators.

“We have clients who booked a trip very long in advance and now, a few days before they´ll start, there are very high costs to pay on top. This morning, I´ve got a cost report for a client who already is on his way to Tanzania: he has to pay $260 more for his 7-day safari.

“From one day to another day 18 per cent VAT – without announcement a certain time before – together with a huge increment of fees for Ngorongoro Conservation Area Authority (NCAA) – that´s incredible!

“And I have seven more clients, who already have booked and paid for their trip – and they still don´t know that they have to pay much more. “I´ve heard that already a lot of visitors canceled their safaris – and are very annoyed!” reads part of the message.

Another operator also shared his views.

“If a client is paying $3500.00 for a basic safari and we add 18 per cent VAT, he/she is paying extra $630.00 which is a lot of money. A tourist will save at least 2 years before coming to Africa,” reads part of another message.

Another foreign operator shared mathematical views from his client.

“If I go to South Africa or Namibia right now I’m saving about 50 per cent from 2012 costing just due to Euro-Rand exchange. In 2012 it was 1 euro 10 Rand. Now it’s 1 euro 16 Rand (Safaris are paid in Rand there). Going to Tanzania, I have to pay in US Dollar and in 2012 1 euro was about $1.35, now 1 Euro is $1.08.

“That is 27 per cent more expensive to me and now the 18 per cent VAT must be added to the bill.

“Last year I went to Botswana on a 13-day mobile tented safari going to Victoria Falls, Chobe National Park, Moremi Game Reserve and Okavango Delta. I paid 2,500 euro with a scenic flight over the Okavango Delta included, in a group of 12 people, 6 people per vehicle on 9 seats per vehicle and accommodated in large en-suite Meru tents. There is no way to do a safari like this one at this price in Tanzania,” the message reads in part.

Ms Nibigira says those are just a few cases reported and wondered how destination Tanzania would be affected in the next few months.

MORE INFO: SEVEN ISSUES LIMITING TZ TOURISM

1. Incoherent policies, institutions and regulations

2. Inadequate vision for the sector

3. Inadequate marketing and branding

4. Limited tourism infrastructure

5. Multiplicity of taxes, levies and fees

6. Skills gap and restrictive labour laws

7. Wanton destruction of natural assets

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Source: The Citizen

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