18 %VAT charges on up country hotels will “kill” Tourism

L-R Gary Seagal, Bonifence Byamukama, Geoffrey Baluku & James
L-R Gary Seagal, Bonifence Byamukama, Geoffrey Baluku & James

PRESS RELEASE: Monday 23rd June 2014

DELIVERED 

BY

BYAMUKAMA BONIFENCE – CHAIRMAN LOBBY COMMITTEE, UGANDA TOURISM ASSOCIATION

Uganda Tourism Association is the apex body of the private sector tourism associations in Uganda. UTA has a membership of the major tourism associations like Association of Uganda Tour Operators Association (AUTO), Uganda Hotel Owners Association (UHOA), Uganda Safari Guides Association (USAGA), The Uganda Travel Agents Association (TUGATA) and Uganda Community Tourism Association (UCOTA).

The tourism sector is one of the fastest growing sectors in Uganda at an annual growth rate of 21%.

According to the World Travel and Tourism Council (WTTC), tourism is;

>  One of the country’s leading foreign exchange earners and it employs over 500,000 people (directly & indirectly) majority of whom are women and youths.

>  Every Tourist arrival creates 2 jobs.

According to World Tourism and Travel Council (WTTC) forecasts for 2022, the tourism sector in Uganda is expected to:-

>  Have attracted capital investment of UGX 494.5bn in 2011, which is expected to rise by 6.1% pa over the next ten years to UGX922.2bn.

>  Support 715,000 jobs by 2022 (7.2% of total employment), an increase of 3.1% pa over the period

>  Tourist arrivals are forecast to total 1,907,000, generating expenditure of UGX3, 767.4bn, an increase of 4.9% pa.

Tourist Arrivals by purpose of visit

Table below shows that, the majority of tourists arrivals came into the country to visit friends and Relatives followed by those for business and professional conferencing and then leisure, recreation and holidays. The category ‘others’ includes travelers in transit, those engaged in temporary employment and short-term contract / consultancy etc

The number of nonresident arrivals that came into the country for leisure, recreation and holidays increased from 144,000 to 148,000 representing 3 percent increase between 2009 and 2013.

Tourist Arrivals by purpose of visit (‘000s), 2009 – 2013

Purpose 2009 2010 2011 2012 2013

Leisure, recreation and holidays

126

149 76 148

188

Business and professional

167

184 160 205

296

Visiting friends and relatives

406

357 603 383

528

Others

107

256 312 461

194

Total

806

946 1151 1197

1206

Visitor to National Parks (000’s), 2009-2013 – Source: Uganda Bureau of Statistics

Tourism Expenditure (USD Million)

Year                                 2009         2010   2011       2012       2013

In-bound Tourism      564            662      805          834        979

The proposed new VAT 18% tax imposed on upcountry accommodation facilities will lead to losses by Tour Operators / hoteliers who have already sent out itineraries/ pricing to their intending clients and it is impossible to revise the rates quoted, this may also lead to reduced number of tourists due to cancellations after the increase is imposed on them.

Please note that a confirmed safari is a contract between the destination tour operator and the agent abroad. The rate quoted cannot be changed as per the law.The Tourism Sector should be Zero rated since we already pay VAT on water and fuel.

According to our calculation based on ten days safari, the vat put on upcountry hotel increases the cost by US$1,000 for a couple (US$500 per person) travelling to Uganda and an additional US$1,000 for based on 10% Bank Charge /wire transfer for transfer of US$10,000 transfer.

The tourist is already paying over US$1,000 in terms park fees and other park activities, hotels in Kampala ,restaurants, drinks (along the entire value chain).

Ush 5 Billion was allocated to Uganda Tourism Board for marketing and we thank Government. However, we would like to that this amount is minimal and cannot meet the marketing gap of Uganda as a country. It is with the above that we urge government to have a paradigm shift in the way they look at tourism. Tourism as an Export, government should consider increasing allocation of funds to the tourism sector for purposes of marketing and working on infrastructure like tourism roads such as the circuit around Bwindi Forest among others. As a result of poor roads, our vehicles are badly hence a big challenge to the sector players.

Uganda stands to lose if Government goes ahead o implement VAT on upcountry hotels because most of the tourists will cancel.

Uganda Tourism Association
Uganda Tourism Association

For God and my country

…………………………………………………………………………………………………..

On the same issue of VAT, Susan Muhwezi the Chairperson Uganda Hotel Owners Association (UHOA) and Vice Chair of Uganda Tourism Association Lobby Committee had this to say;  “as we struggle to promote Tourism which is an invisible Export – that is growing by leaps and bounds, why can’t those in Finance , Parliament see it and avoid strangling a sector in it’s infancy” .

Power costs are high, Hotels & lodges are still empty yet they have to meet all the utilities, pay workers, pay taxes in different forms and many other things” Susan dded.

#End

 

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One thought on “18 %VAT charges on up country hotels will “kill” Tourism”

  1. Government’s proposal regarding reinstatement of VAT on supply of hotel accommodation in tourist lodges and hotels outside Kampala District is un welcome. Our argument as Tour Operators has been and is still the same. The tourism industry in Uganda is still too young and indeed still needs incentives to support and sustain its growth. A few years ago, the government had tax incentives to stimulate investment in rural areas. This brilliant strategy is partly the reason why several hotels sprung up in the rural areas. If we are to reap the benefits, this move needs to be sustained until there are more investments and those that are there have recovered their investment capital.

    It should be noted that VAT is a value added tax. In rural Uganda services are still very poor, the road network is very bad. Water and electricity are not readily available. It’s is also very difficult to attract quality labor to employ in such remote places. All these make the investment very expensive and difficult. Until some of these issues are solved. We feel that a value added tax is not applicable to these investments.

    Tour operators normally sign contracts with foreign tour operators for two to three years. The contract rates are always agreed upon at the start of the year. Based on this information, the foreign tour operators make expensive brochures and undertake very expensive marketing strategies to market our packages.

    We too spend a lot of money traveling all over the world marketing Uganda as a prime destination at our own expense. Uganda is still largely unknown and the tourist numbers are still minimal compared to the other East African states. It is important that the government recognizes our efforts and realizes the fact that we are still struggling to get tourists and as such cannot afford to be perceived as expensive.

    Most of the upcountry hotels are also engaged in rural projects to help local communities as part of their corporate social responsibility. Many are engaged in agricultural and educational projects and also provide training and employment to the local people. Responsible tourism demands that players in the tourism industry embrace such strategies that consider protection of the environment and development of rural communicates.

    Tourism is moving more towards philanthropy more than anything else. This is the trend. We need to appeal to government to ride on this wave and find ways of encouraging the tourism investors and entrepreneurs to get more involved in rural development. This is more desirable than charging VAT and the benefits will trickle down to the grass roots and stem the undesirable rural to urban migration and high crime rates in the towns. This is the long term view that should be pursued and not charging VAT.

    Going Forward: This tax (18%VAT) on up country hotels needs to be differed for a period of at least 10 years. I believe, the sector will then be ready to absorb such kind of taxes.

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