Tour operators in Tanzania say should parliament endorse the new VAT on tourist services announced by the Finance Minister Philip Mpango in the 2016/17 budget, Tanzania will become prohibitively expensive compared with rival destinations Kenya, South Africa and Botswana. Meaning, Tourists to Tanzania could pay upto 25 per cent more than what is charged by other East African countries.
The 330-member Tanzania Association of Tour Operators (Tato) said in a statement that the country was already charging 7 per cent more than other regional states due to multiple taxes and that imposing the proposed VAT would cripple the $2 billion worth industry.
Tour operators in Tanzania are currently subjected to 32 different taxes, 12 being business registration and regulatory licence fees, 11 annual duties for tourist vehicles and nine other miscellaneous fees.
Learning the hard way
Kenya learned a hard lesson in 2015 when it imposed VAT on tourist services, and in the 2016/2017 budget estimates, the government not only allocated Ksh4.5 billion ($44.1 million) to the industry but also provided a number of incentives.
Among the incentives announced by Treasury Cabinet Secretary Henry Rotich is that entry to national parks (park fees) is now VAT exempt, as are commissions paid to tour operators.
“Tanzania should avoid making the same mistake [made by Kenya in 2015], otherwise our neighbours will capitalise and have a free ride on our mistakes,” said a statement signed by Tato chief executive Sirili Akko.
Charging VAT on tourist services, Tato says, will make Tanzania expensive and disadvantage its tourism industry given regional and international differences in product pricing. It will also derail the government’s goal of attaining two million arrivals by 2020.
Tato argues that there is no justification in exempting transportation (regular and scheduled) services from VAT and charging the same on tourist guiding, game driving, water safaris, animal or bird watching and park fees, when the whole tourism business is about transporting people to national parks or nature reserves.
According to Natural Resources and Tourism Minister Prof Jumanne Maghembe, the number of tourists arrivals dropped by 37,987 to 1.10 million in 2015 from 1.14 million recorded in 2014. The reduction in the number of visitors also saw a fall in foreign exchange earnings to $1.93 billion last year from $2 billion in 2014.
“It is practically not possible to draw a line between transportation and other tourist services,” reads the Tato statement, adding that park fees are also a form of tax or levy and it makes no sense to charge VAT on another tax.
The association says that it understands that loopholes in system allow unregistered companies to operate and deny the government revenue. It argues that honest tour operators and travel agents should not be punished because of a dishonest few.
“Tato is open and willing to work with the government in widening the tax base and dealing with dishonest operators,” the statement concludes.
Due to a complex tax regime, Tanzania has about 1,050 tour companies, but official data shows that only 300 formal companies comply with the tax regime. This means that there could be 750 briefcase tour firms operating in Tanzania.