Government to lose Shs21 billion worth of tourism taxes

Thursday May 28 2020

Grounded: The tourism sub sect was almost

Grounded: The tourism sub sect was almost grounded due to the effect of lockdowns across the globe. PHOTO BY EDGAR R BATTE  


A new report has indicated that government is expected to lose a significant sum of tax revenue due to the Covid-19 crisis.
The report titled: Assessment of the economic impact of Covid-19 and interventions for tour operators in Uganda, notes that on average, government in 2019 had earned at least Shs112m from each tour company, translating into a combined sum of Shs34b.
However, this is expected to fall significantly with each tour operator, according to the report, in the foreseeable future expected to pay just 39 per cent of the Shs112m, which translates to about Shs13b.

The report, authored by Prof Celestine Katongole, a tourism planning and development expert, Mr Esau Atwongyeire, a certified leadership specialist and Ms Anna Grodzki, a tourism professional and head of Matoke Tours, sought to document the impact of Covid-19 on members of the Association of Uganda Tour Operators.

Key component
Tour operators are a key component in the tourism value chain with promotion and marketing roles that attract at least or more than 90 per cent of tourists in Uganda.
However, the sector has been adversely affected by Covid-19, which has incapacitated operations of the entire value chain.
According to available data, tourism, during the 2018/19 financial year, contributed about 7.7 per cent to gross domestic product resulting from growth of tourism arrivals of about 7.4 per cent.

The growth saw earnings from the sector increase to $1.92b and pushed jobs in the sector to about 667,600.
However, the outbreak of Covid-19 has significantly affected the sector and according to the report, players, especially tour operators, will not be able to meet at least 61 per cent of tax obligations, which means that government will lose close to Shs21b in tax revenue.
Beyond this, the report notes, other sectors will lose income due to reduced operation capacity by a number of tourism players.
For instance, according to the report, electricity consumption is expected to fall by 27.1 per cent, which will see a loss of at least Shs558m due to electricity distributors.

Water demand is expected to drop by 17.3 per cent, translating into third party loss of Shs152m, while consumption of telecom services is expected to fall by 43 per cent.
Job losses and salary cuts have already been registered in the sector with at least 90 per cent of employees affected.
The report notes that whereas over 60 per cent of companies in the sector are still paying their employees, about 40.6 per cent had already effected salary cuts.
Most temporary and contractual staff, the report notes, have been laid off and it was not immediately clear if they will be reinstated.

The reported noted that government and other stakeholders must work on a well-structured provision of small, well-targeted, non-refundable grants to allow operators in the sector recover from current shocks.
At least, according to the report, about Shs35b will be needed in grants to cater for operational costs, especially salaries and wages and rent, among others.
The report also notes that government, through Uganda Development Bank, must put in place a credit line of about $22m that will enable operators to access credit facilities of about 5 to 10 interest to enable them to buy tourism-related equipment.


Fall in revenue collection
According to Ministry of Finance, Covid-19 will cause substantial revenue shortfalls of about Shs82.4b from March to June and Shs187.6b in the 2020/21 financial year.
However, in the worst case scenario, losses are expected to grow to between Shs288.3b and Shs350b by the close of the 2020/21with tourism contributing about 12 per cent of the total shortfall.

The collection shortfall will be exacerbated by restrictions on cross-border movements, which according to the United Nations World Tourism Organisation have been in place since April 20.
About 97 countries had closed borders while 65 countries had by April 20 suspended international flights.