Hoteliers and taxes:  The bitter-sweet relationship

Empty seats at Lakes restaurant at Kampala Serena Hotel. Hoteliers pay 25 taxes and licences. PHOTO/ ABUBAKER LUBOWA 

What you need to know:

Hoteliers who claim to operate under an exorbitant tax regime warn of revenue shortfalls unless some taxes are harmonised.

In 2012 and 2016, according to CNN, Uganda was ranked among the top 16 holiday destinations in the world. That shows that tourism is a major foreign exchange earner for the economy. Uganda Investment Authority (UIA) puts the Gross Domestic Product (GDP) contribution of the tourism industry at 7.7 per cent. The World Travel and Tourism Council, shares that tourism and travel has made great contributions to Uganda’s economy in regards to employment with an estimated rise in employment to 8.9 per cent which translates to 921,000 jobs by 2025.

This sector has 5,731 taxpayers who contributed Shs117,763 billion last financial year alone.

But for several years, members of Uganda Hotel Owners Association (UHOA) have grappled with the tax regime. The executive of UHOA has been lobbying the Uganda Revenue Authority (URA) and Ministry of Finance officials to find a way forward. When Covid-19 hit, their business saw 450,000 hotel room bookings dropped and visitor numbers dropping from 51 per cent to 12 per cent.
Ms Susan Muhwezi, the chairperson of UHOA says the sector is burdened with 25 taxes and licences. These include:  Corporation Tax - 30 percent, Withholding tax - 6 percent, Value Added Tax (VAT) – 18 percent, Hotel Tax - $2 (Shs 7,635) per room per night, Local Service Tax and Service Charge – 5 percent among others. 

The other issue is the threatening nature of URA officials, which cuts across to verbal, and legal harassment. While these have been around for several years, the burden intensified when after the Covid-19 battering, URA introduced systems to widen the tax collection base.
A commendable tax regime should be easy to understand. However in this case, where tax payers are confused about the taxes at hand. 

Harmonising taxes
Isaac Arinaitwe, a senior economist in the Finance Ministry says this shows poor coordination within government (local and central). 

“We are going to coordinate better to streamline these as some could be merged. This involves legislation and stakeholder engagement. Therefore, this is one of the things we will look into during the budget preparation that starts in September,” he says.

Mr Herbert Byaruhanga, the chairman of Uganda Tourism Association says URA should understand how the tourism sector generates money. 

“URA needs to understand how this money is disseminated because not all goes into our pockets as most goes in dues,”Byaruhanga says.

Poor communication is another issue hoteliers are faced with because for instance, when the President assented to the proposed tax holiday given to hoteliers owing to Covid-19 effects in September 2020, it was only published in the newspapers in April 2021 yet it was expiring in June 2021. That means the intended benefits were not experienced by the hoteliers yet this would have enabled them do business better during a precarious time. 

The same goes for any new URA legislations because  the communication takes long to get put to the public yet compliance is mandatory.

URA’s commissioner general, John Musinguzi Rujoki agrees to commissioning a desk in URA dedicated to the tourism industry. This will be chaired by the commissioner of domestic taxes and these will directly interface with the players to better serve the sector.

Electronic invoices
Mr Cephas Birungyi, the Secretary General of UHOA, says they are conversant that URA has a mandate to widen its tax base and is being creative. 

However, there is limited time to understand the systems. “Most food vendors are not tax registered. So, it becomes difficult for hoteliers to deal with farmers who do not pay Value Added Tax (VAT). To abide with the current tax systems such as Electronic Fiscal Receipting and Invoicing System (EFRIS), hoteliers are forced to travel long distances to get suppliers who can issue them EFRIS receipts which increases production costs. 

Additionally, that makes them fail to support the farmers that are around these hotels with cheaper and fresh food yet the agricultural and tourism sector work hand and hand,” he says. 

While hoteliers have not been taught about these systems, they are penalised for failing to comply. .
Commissioner Domestic taxes, Sarah Chelangat notes that while penalties are heavy, they are stipulated by law in a bid to make people steer clear of tax evasion. 

“Before one is penalised, they should be educated. We are embarking on a training exercise with the hoteliers andI believe it will help,” she says.

As per URA policies, any disputes between the body and tax payers are dealt with by the Tax Appeals Tribunal.
However, this tribunal was abandoned because the cases therein had stalled for as long as two years. That birthed the Alternative Dispute Resolution (ADR) to speed up hearing of tax payers’ complaints and reduce costs that would have been incurred. 

Hoteliers say when issues fail to get resolved under the ADR, they are sent back to the Tribunal and should the time since the issue was logged in exceed three months, they are reminded of the time lapse and sent to court. 

“This override is owing to the fact that while the tribunal was set up by law, ADR is in-house therefore can be overrun by the precedence of the law that runs the tribunal,” they lamented.

Mr Musinguzi says the ADR window is still available owing to the benefits it renders URA and tax payers. “For instance, through it, last year, we collected Shs650b.” ADR has guidelines and a team chaired by the commissioner of domestic taxes.

The hoteliers also wonder why the local investors barely get tax holidays while their foreign counterparts get them with ease. 
Solomon Rukundo of Grant Thornton also suggested that the tax exemption threshold is high and should be lowered to $4,000 (Shs15m) from $8,000 (Shs30m).