Friday June 13 2014

‘Reinstatement of VAT on upcountry hotels to cripple tourism industry’

Tourists aboard a board on Murchison Falls on

Tourists aboard a board on Murchison Falls on Albert Nile. The sector is likely to suffer from increased taxes on accommodation. 

By Dorothy Nakaweesi

Kampala- Despite expressing interest in supporting the tourism industry through putting emphasis on tourism promotion, training and regulation, stakeholders were not contented with the Shs5 billion allocations.

To add salt to the injury, government went back door and instead introduced new taxes that players in the industry say is going to leave the country less competitive compared to her neighbours in the region.

In her Budget, Finance Minister Maria Kiwanuka yesterday said: “The tourism sector will significantly contribute to national output if its full potential is utilised. In order to realise the tourism sector’s potential, government will formulate a comprehensive Tourism Sector Strategy that addresses promotion, training regulation, and infrastructure development.”
Because of this effort Ms Kiwanuka accordingly allocated an additional Shs5 billion to the Uganda Tourism Board (UTB) for Tourism Promotion, for the formulation of the strategy.

However, in a move that disheartened industry players, Ms Kiwanuka announced Shs5 billion additional fund to the previous year’s Shs10.7 billion which is still less than Shs10.761 billion allocated in the 2012/13 financial year.

Ms Kiwanuka in the budget terminated exemptions under the Second Schedule of the VAT Act, and because of this, the supply of hotel accommodation in tourist lodges and hotels outside Kampala District will be no more.

Reacting to the budget allocations to the tourism industry, Mr Amos Wekesa the managing director-Great Lakes Safaris and a tourism enthusiast said VAT is going to kill tourism instead.

“Tourism is an invisible export which should actually be zero rated and this is something we are going to fight,” Mr Wekesa said.

He added that the Shs5 billion is still peanuts compared to what Uganda’s neighbours are going to allocate to their tourism.

“I think tourism should not be mentioned in the same breath as trade,” Mr Wekesa said.

The Secretary to the Board of Association of Tour Operations in Uganda (AUTO), Mr Geoffrey Baluku, says: “As Uganda tour operators, we feel the tourism industry in Uganda is still too young and indeed still needs incentives to support and sustain its growth”.

He said that 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,” Mr Baluku said.

Adding: “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 labour to employ in such remote places”.

Baluku said these challenges make investment very expensive and difficult so government needs to look into this situation if Uganda is to compete favourably.

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 have already been agreed upon.

“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,” he noted.

Yet Uganda is still largely unknown and the tourist numbers are still minimal currently ranked slightly more than one million compared to the other East African states.

He said: “It is important that the government recognises our efforts and realises the fact that we are still struggling to get tourists and as such cannot afford to be perceived as expensive”.