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Proposed tax on tourism ‘to slow growth’

by Tullah Stephen

Operators in the sector say new VAT levy to hit Tanzania hard

BY Tullah Stephen

Tanzania’s tourism sector could be facing tough times in the near future, with players in the industry anticipating a substantial number of cancellations on confirmed reservations. The government, in its 2016/2017 budget speech presented in parliament on June 8 by the Minister for Finance, Dr Phillip Mpango, imposed an 18 per cent Value Added Tax (VAT) on tourism services.

The services include tour guiding, game drives, water safaris, animal or bird watching, parking fees as well as ground transport services.

The move has irked stakeholders, who have argued that taxation will severely affect their business. Operators are of the opinion that the tax will turn the country into an uncompetitive destination.

Growing sector

The sector has been experiencing growth in the last few years. Data from the National Bureau of statistics show that tourism is Tanzania’s leading sector in terms of foreign exchange, boasting earnings of US$2.05 billion in the 12 months ending January 2015, up from US$1.89 billion by the end of January 2014. The sector employs close to half a million people and contributes close to 17.5 per cent of GDP.

Tanzania, in its five-year marketing plan rolled out in 2013, expects to receive two million tourists. This is in addition to growing revenue generated from tourism from US$2 billion to US$3.8 billion by the end of 2017. Players in the industry argue that meeting the country’s targets will remain a pipe dream if the government imposes the 18 per cent VAT.

Making matters worse is that Kenya, Tanzania’s neighbour and competitor, has allocated US$45 million for tourism promotion activities, in addition to other tax incentives to be announced shortly.

Presenting the budget, Dr Mpango said imposing VAT on the services was put on hold during the start of the new VAT Act in July 2015 to allow the operators to fulfil contractual obligations entered with tourists in the year.

Tour operators in Tanzania are among the most heavily taxed and the new VAT is seen as detrimental to the sector. “This business is proving to be too expensive for us. We are subjected to over 30 different taxes in business registration, duties for the tour vehicles, among others,” says Mr Chambulo Isaac, a tour operator who ferries tourists on the Arusha-Nairobi route.

On the defense

Defending the VAT, Dr Mpango argued that VAT on tourism services is nothing new in the region. He mentioned countries such as Rwanda, Kenya and South Africa that had previously announced taxes on similar services. In 2013 Kenya introduced the VAT Act 2013 which slapped a further 16 per cent on services in the sector. However, the government, in its 2016/2017 budget, proposed to remove the VAT on park entrance fees as well as tour operator services.

Further spicing up competition between Tanzania and her neighbours, Uganda also scrapped off the 18 per cent it had imposed on upcountry safari accommodation for tourist lodges and hotels outside Kampala District.

However, all is not lost for Tanzania’s tourism as the government has also proposed VAT exemption on aviation insurance charges, a major boost for airlines operating in the country as well as tourism.

Shift in focus?

In the last few years, Tanzania set aside about 28 per cent of its land for nature and wildlife. And in the last few years has aggressively engaged in a vigorous marketing strategy that it believes will position the country as the top safari destination in the world.

However, through the 2016/2017 budget, the government seems to have shifted its focus to other sectors such as manufacturing, industrial projects and infrastructure.

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