Government rescinds 18% VAT on upcountry accommodation

The Uganda government has finally backtracked and agreed to rescind the 18% VAT on all upcountry accommodation.

During this year’s presentation of the Uganda National Budget for 2013/14, the Minister for Finance announced the introduction of an 18% levy on all upcountry accommodation and subsequently administered it starting 1st June. The levy was heavily resented across the tourism industry. This is because the nature of the tourism business involves prices with clients & foreign travel agents are agreed upon way in advance.

Then suddenly, without prior notice or consultation, a new tax is imposed on the accommodation that is already included in these prices! This simply puts the tour operators in trouble with clients & travel agents, as they have to change the already agreed upon prices otherwise they won’t afford to start off the tours and safaris. Several tour operators already incurred cancellations, while others are reported to have closed shop and made off with the remainder of their clients’ money simply because they could no longer afford to continue with the safaris and tours. Those that chose to absorb the tax have reported gross losses or made meager profit. If anything this tax was simply untimely and generally bad for the promising young tourism industry.

However, after several meetings with policy makers and the powers that be, the tourism fraternity has been able to convince at least the postponement of this tax. Though it should have come earlier, it is still great news that the government of Uganda has agreed to defer the tax for the next financial year. The Minister for Finance Hon. Maria Kiwanuka announced this proposal to the Finance Committee of Parliament which did agree to it and it is now left with parliament’s approval.

Our prayer however as tourism stake holders is for the government of Uganda to do away with whole idea indefinitely. Uganda’s tourism industry is upcoming and is growing at one of the fastest rates. One of its major challenges has been the high cost of visiting Uganda compared to her neighbors and biggest competitors. Introducing such a tax at this stage is simply a disincentive.

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18% VAT on Accommodation will make Uganda’s toursim less competitive

On 13th June 2013, the Minister of Finance Hon. Maria Kiwanuka presented to the Parliament of Uganda the National Budget for 2013/14, in which she announced the introduction of the introduction of VAT on accommodation.

Although, the Parliament had not yet debated and pronounced itself on the pronouncements contained in that budget, the Minister of Finance basing on the provisions of The Taxes and Duties (Provisional Collection) Act of 1963, has already started administering this tax starting from 1st July.

The effect of this impromptu collection of this tax has raised deep concern by the stakeholders and unrest in the tourism sector. The tax is not only causing anxiety in the sector, but also is bound to hurt the very industry that the country is currently relying on for its contribution to our GDP.

Note: During the budget speech in the EAC countries, it was only Uganda and Tanzania which imposed the VAT on accommodation, but our partner Tanzania has since rescinded this tax after reconsidering its potential adverse effect on their tourism sector.

Effects of the tax:

  • The sector is witnessing cancellations in bookings due to this impromptu increase in pricing of accommodation.
  • All bookings that had been made in advance are going to be affected
  • All contracts that have been made with agencies abroad are at risk of termination
  • Uganda is going to be even less competitive compared to our EAC partners
  • Jobs are going to be lost and thus increasing the unemployment inertia in the country

Facts:

Tourism is now the leading foreign exchange earner for the country at USD830million

Earnings from remittance from the Diaspora amount to USD 767million

Uganda gets the least number of tourists annually compared to Kenya and Tanzania.

Country Number of N. Parks No of Tourists annually
Kenya 29 2.4million
Tanzania 31 760,000
Uganda 23 80,000

The entire East Africa Community has a total number of beds of 100,000

Kenya takes 80% while Tanzania, Uganda, Rwanda & Burundi share the 20%

Uganda has the least budget allocation for marketing the country’s tourism potential

Comparative Marketing Budgets of EAC:

Kenya          ->       $23 million of which $12 million goes to direct marketing

Uganda        ->       Shs.1.4 billion of which Shs. 240million ($90,000) goes to direct   marketing

Tanzania      ->       $10 million goes to direct marketing

Rwanda       ->       $5 million goes to direct marketing

Burundi       ->       $1 million goes to direct marketing

An increase of the annual number of tourists to Uganda from the current 80,000 to 100,000 will correspondingly increase the country’s GDP by 1%.

In order to achieve the above, government must do the following among others:

  • Rescind the VAT on accommodation in order to make our industry competitive
  • Must invest at least 1% of the total earnings from Tourism ($8million) annually in promotion and marketing.

Simply trying to make exceptions for contracts pre dating 1st July will not solve the problem, because tourism contracts are not the same as those of trade of goods. Travel agents sign contracts that run for three years and more. The contracts include agreed upon prices during that period and can not be changed no matter the circumstances. Unless you know the workings of the tourism sector, you can not administer any tax that is bound jeopardize several of operators’ contracts.

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Uganda Government Introduces 18% VAT on Accommodation

On 13th June 2013, the Minister of Finance, Hon. Maria Kiwanuka during the presentation of the Uganda National Budget for 2013/14 announced the introduction of 18% VAT on all upcountry accommodation which includes all lodges within the game parks.

On 1st July the Minister went ahead and started administering this tax. This implied all upcountry lodges were mandated to charge 18% VAT on payments made starting from July 1st, irrespective of whether the reservation or booking had been made before 1st July.

The tax is untimely and bad for Uganda’s tourism

The impromptu collection of this tax has already caused panic and anxiety across the tourism industry. Lodges have had to advise all tour operators to rush and pay for their reservations before 1st July to avoid this untimely tax.

Given that July is a peak season in the tourism industry tour operators are holding many bookings from clients that are pending full payment. This means most tour operators do not have enough liquid cash to pay all their reservations by 1st July hence they will have to incur the new tax on the accommodation. Since it is likely that a price with the clients had already been agreed upon, including this tax simply eats into the profit and the total package expenses. The result is that the tour operator makes little or no profit, or makes a loss or is overwhelmed by the extra charge to the extent that he/she is unable cater for other expenses and so he or she can not even start off the trip. The end result is that tour operator shall be sued for breach of contract.

For those tour operators that hold contracts with travel agencies abroad are at a risk of losing them. This is because the prices for which they had agreed up in the contracts are bound to increase causing them losses given that they could have already got clients signed up for those packages. This only means Uganda is bound to lose more tourists.

Many tour operators and lodges that are writing to clients and agents requesting for an increment to cover up for the new tax are facing cancellations. Among other challenges, Uganda is claimed to be a very expensive destination compared to her neighbors and now coming up with this tax simply endorses this claim that will only force the tourists away.

All indicators show that this tax is not only untimely but also uncalled for given the negative impact it is bound to have on the tourism industry. It is important to note that during the budget speech in the East African Community (EAC) countries, it was only Uganda and Tanzania which imposed the VAT on accommodation, but our partner Tanzania has since rescinded this tax after reconsidering its potential adverse effect on their tourism sector.

There are ongoing efforts by all stake holders to convince the government to rescind the tax. On July 12 at a press conference organized by the Minister for Tourism, Wildlife and Antiquities regarding this mater, the tour operators including African Adventure Travellers and accommodation owners discussed with the Minister Hon. Maria Mutagamba. The Minister was enlightened on the dangers of the tax and promised to write to the Minister of Finance and advise her to reconsider the administration of the tax for the time being.  She also promised to raise the matter to cabinet and will try her level best to see to it that the tax is at least postponed.

In the meantime tour operators & lodge owners are considering others avenues such as petitioning the parliament of Uganda and also seek audience with the leader of government of business, the Right Hon. Prime Minister Amama Mbabazi. And if all fails, the last option shall be to meet the president.

However we do have faith that the government shall realize that the tax is bound to cause more harm than good and thus do away with it.

 

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