Tourism industry now seeks VAT moratorium

Tourists at the Maasai Mara Game Reserve: The local tourism sector is lobbying for a delay in the implementation date of the new VAT levy. FILE 

By Sandra Chao and Mathias Ringa

In Summary

• Local hoteliers face losses as EU laws do not allow price changes after bookings.
• Hotels may be forced to pay the VAT from their capital because consumer protection laws in the EU do not allow price changes once bookings have been made.

Hoteliers and tour operators are lobbying to have Value Added Tax on their services delayed to help them cope with competition from rival African markets.

While releasing the industry’s performance for the last financial year, East African Affairs, Commerce and Tourism secretary Phyllis Kandie said that meetings with the private sector had resolved to lobby the Treasury for more time.

“It is not that they do not want to pay the levy, the issue is the effecting date. We will take this a bit higher so that they can be given more time as the levy will hit their bottom line,” Ms Kandie said.

Hotels may be forced to pay the VAT from their capital because consumer protection laws in the European Union do not allow price changes once bookings have been made.

The VAT Act was passed in August and started being enforced on September 2, making basic hotel services such as food and accommodation that were previously exempt subject to the 16 per cent value added charge.

“If left as it is, packages that were once affordable will become more expensive and this will have an impact on the numbers,” Ms Kandie said.

The Kenya Revenue Authority is expected to collect an additional Sh10 billion in the current financial year from the levy.

Hoteliers and tour operators had even before the enactment warned that the tax would increase their operational costs with even electricity and rent for commercial property now vatable.

Park and conservancy fees are now also taxable.

“We are concerned that the charges will undermine wild safaris, which are the major tourist attraction in the country. Most tourists from Europe come to Kenya because of the wildlife. If the tour charges are too high they will go elsewhere,” said Kenya Association of Tour Operators (Kato) Coast branch chairperson Monika Solanki.

High park fees have in recent years seen Kenya lose potential international tourists to Tanzania, which charges between $35 (Sh3,045) and $40 (Sh3,480) per person compared to $65 (Sh5,655) and $80 (Sh6,960) in Kenyan parks.

South Africa, Zambia, Zimbabwe and Botswana are other competitors for the Africa game drive market.

The 16 per cent VAT would force operators to increase their charges, reducing their competitiveness further. Counties like Narok, which depend on collection of revenue from the Maasai Mara Game Reserve, would be among the biggest losers. Southern Cross Safaris operations director Philip Kasavo said the firm had lost some of its clients to Tanzania.

“Some of our clients now go on holiday in Tanzania as they have the big five and also enjoy beautiful beaches in Zanzibar,” Mr Kasavo said.

International tourist arrivals are also being threatened by an increase in air travel costs, making tourists prefer short-haul flight holidays.