Thursday 14 July 2016

TANZANIA: Destination Tanzania More Expensive Because Of 18% VAT To Tourists

When tourism stakeholders met with former President Jakaya Kikwete in the beginning of last year, they agreed to identify challenges facing the sector and put it in the lab of Big Results Now (BRN) to analyse and ultimately improve the business environment.

Mr Kikwete was the chairman of the Tanzania National Business Council (TNBC).

A committee was formed by the industry players from both public and private sectors and compiled a report with seven pillars of challenges facing tourism - ranging from threat to wildlife, poaching, and dynamite fishing to multiple taxes.

The report was ready at the time democratic choices had put a new government and that way, Mr Kikwete could not receive the report he promised to work on to address the challenges.

When President John Magufuli met representatives of the business community last December, the stakeholders gave him the report, with challenges they wanted addressed, they say.

According to them, they also presented the same report to the minister for Natural Resources and Tourism, Prof Jumanne Maghembe, and he received the presentation well.

When June 8, 2016 came, nothing had been done to address any of neither the identified challenges nor put tourism in the lab of BRN - the Malaysian model of development initiative adopted in the country which aims at adopting new methods of working under specified timeframe for delivery of the step-change required.

On top of that, a new challenge emerged when Finance and Planning minister Philip Mpango announced the introduction of the 18 per cent Value-Added Tax (VAT) on tourism services.

Despite all efforts to have the new tax removed, they hit a snag as Parliament endorsed both the Budget and the Finance Bill unchanged in the particular section.

That means, destination Tanzania is becoming more expensive by increasing its cost by 18 per cent to tourists when they enter national parks, game drive and marine cruising among others.

"VAT is not bad but the issue is its timing. We had identified challenges which the government has not yet worked on them and now it comes with the new problem. The sector needs support. What can VAT do for tourism?" says the Tanzania Confederation of Tourism (TCT) executive secretary, Mr Richard Rugimbana.

As the new tax emerges, the budget for the Tanzania Tourism Board (TTB) was still low compared to other competitors.

Kenya's marketing budget is about Sh90 billion but that of Tanzania is about Sh5 billion and has been up and down. Yet the countries are seeking visitors from almost the same markets.

Sources from the industry say that TTB will not even participate in the London-based World Travel Marketing (WTM) in November - a global annual event for the travel industry to meet industry professionals and conduct business deals.

Kenya introduced VAT on tourism in 2013 but its implementation, plus security challenges brought about by the terrorist attacks, affected the sector so much that the country scrapped it effective this July.

While the tourism players were contemplating on how to go about the imposed VAT on the sector, the Ngorongoro Conservation Area Authority (NCAA) announced another increment in rates effective July 1, 2016.

The new rates apply to entry fees; motor vehicle permits; annual fee for commercial vehicles; camping fees; aircraft landing fee; crater service fee among others.

That happened ahead of Britain voting to leave the European Union; a move that affected the performance of the sterling pound against the US dollar. Decelerating pound against the US dollar makes it more expensive for Britons to travel including to Tanzania as many of the charges to foreigners are pegged in the dollar.

Tourism is Tanzania's leading foreign exchange earner which generated $2.2 billion in 2015 and the income has been increasing year-after-year.

It employs about 500,000 people although the World Bank said most of the jobs to Tanzanians especially those from communities around tourist sites are low-end.

However, the industry players are now skeptical about the future of Tanzania tourism as it would be affected by abrupt changes and lack of consistent and unpredictable policies. "I think the future of tourism will remain challenged and the government will stand to lose more, not only because of VAT but also due to its abrupt changes on sensitive sectors like tourism," says the chief executive officer of Tanzania Association of Tour Operators (Tato).

Most companies will either refund clients or absorb the cost themselves; which means because of unpredictability, the international travel agents will not be able to print their two-year brochures including destination Tanzania in their 'sales' because they can't tell which Budget the changes will happen in between," he says.

Right now TTB has clearly expressed that they are not going for market in World Travel Market 2016, and this is another blow.

Why all these last-minute changes? Not only tour operators in Tanzania but also we operators abroad publish the rates up to 18 months in advance -- so should we continue losing money on bookings or should we shred all marketing materials we printed for expensive money with lower rates in it?

If it gets hard or impossible to make long-term-planning and calculations we need to focus on other more reliable countries," posted Mr David Heidler, Denmark-based tour operator on facebook as he commented on Mr Akko's post.

The impact of the VAT is not only to destination Tanzania but also to the region which seeks to market East Africa as a single destination.

Ms Carmen Nibigira, coordinator of the Nairobi-based East African Tourism Platform (EATP), says regional tourism will be not only about products but also competitiveness and VAT is a huge factor when one wants to measure value for money.

The bottom line is EAC should have one harmonized vat system on tourism services. We cannot talk about harmonisation of our laws and regional integration when we have disparities in our law system and maturity of our product and services, she says.

If we are all serious about promoting East Africa as a competitive destination, policy makers need to understand that as a region our tax regimes need to look at the trends.

When the product and the service industry is being developed and in most cases needing some incentives - imposing taxes is not the best approach," she adds.

Tanzania tour operators now are seeking intervention from the head of state despite the fact that Prof Maghembe has insisted that the new tax is here to stay.

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