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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