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countries, it was only Uganda and Tanzania which imposed the VAT on accommodation, but our partner Tanzania has since rescinded this tax after reconsidering its potential adverse effect on their tourism sector.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
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.
|Number of N. Parks
|No of Tourists annually
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.