18 Percent VAT Turns Away Uganda Tourists

German and Hong Kong tour operators have virtually cut off Uganda as a destination product.

This follows the government's recent decision to bring back VAT on tourism related activities.

In the June budget it was announced that in order to widen the tax base, 18% VAT on upcountry hotel accommodation would be reinstated.

The provision is expected to raise Ush6 billion (just over $2 million) this financial year.

However, Corne Schalkwyk, the Head of Marketing and Sales at Marasa Africa said the timing of the tax will have bigger implications on Uganda as a product.

"Currently we have had the Hong Kong tour operators drop their trip. The German tour operators have not only let go of their previous reservations, they have actually dropped Uganda as a product," he said last week.

"This is because the 18% is also applicable to the bookings that had been done the previous year. This means we would have to either absorb the cost or go back to the clients asking for more money. The more we delay to resolve this issue, the more negative and less professional we portray ourselves to international markets," Schalkwyk said.

The Ugandan tour operators had hoped to capitalise on the Hybrid Solar Eclipse in November as enthusiastic eclipse travellers identify positions where the moon covers the entire solar disk.

Satelite information shows that four spots will be relatively more promising than the rest; a location on the water near the point of maximum eclipse; a site in northwest Uganda, one in north central Kenya and a fourth in southern Ethiopia.

The solar eclipse track shows that there are five spots where the eclipse can be viewed in Uganda; Arua, Pakwach (northwest), Masindi, Soroti (east) and Gulu in the north.

According to Ugandan tour operators, by the end of last year, almost all accommodation in the Murchison Falls conservation area had been fully booked for November 2013 as the clients anticipated a better view in the area.

Uganda has however not fully marketed the potential while the Kenyan government has taken it upon themselves to market the activity and the country stands to benefit substantially more.

Eclipses are wonderfully predictable events whose predicted coordinates are the culmination of three millennia of astronomical and mathematical discovery. Utilizing the number-crunching clout of computers, eclipse tracks and times can be reliably calculated for centuries into the past and future.

However, Amos Wekesa, the owner of Great Lakes Safaris said because of the reinstatement of VAT, a number of clients had cancelled their bookings for the eclipse"Government must understand that when you are operating in an unpredictable area like Uganda where other factors come into play, the bigger picture has to be taken into account. We were just recovering from the effects of last year's setbacks to the tourism sector (Ebola outbreak, Marburg and walk to work protests) which affected anyone who wanted to sell Uganda as a product.

"Then this year all of a sudden you say 'there has been an increase of your cost by 18%.' That affects the way people think about Uganda as a destination and look at us as very unserious people," Wekesa said.

A simple search over the internet shows that during the 1999 solar eclipse, the United Kingdom attracted over 400,000 tourists and earned 4billion pounds in three days. Zambia is also estimated to have earned about $40m from last year's eclipse.

When ontacted Keith Muhakanizi, the Secretary to Treasury at the finance ministry over the VAT issue, he said it was a policy matter that could only be answered by the Minster herself, cabinet and parliament. As government takes its time to resolve the VAT issue, Uganda is losing out on possible revenues from prospective tourists who according to the tour operators have decided to move their bookings to Kenya that is also on the eclipse track.

Gary Segal, the Group General Manager of Wildplaces Africa, says that the VAT had already led to a drop down in business by 15%, cancellations on high end properties had also increased.

"I have had to close down four of my rooms to make it more profitable for my business at one of my lodges because of the sudden cancellations. Obviously this will have an impact on my business and I will have to make up for those losses by having other cost saving mechanisms put in place," he said.

Mr. Boniface Byamukama, the Chairman of the Association of Uganda Tour Operators (AUTO) clarified to the media that the tour operators were not against the reinstatement of VAT but rather fault its timing.

"This is a fragile sector and we are not the ones managing it. It is mostly managed from Europe. We give information to our wholesalers who use it to market the sites. So there is no way we can now go back and ask them for additional money. So this tax should be halted for the financial year and may be apply it next financial year when we have had enough time to inform the wholesalers."

With the introduction of the VAT on upcountry hotel accommodation, government hopes to collect Ush6b but as it currently stands, the country could lose up to $6m as a result of the cancellations.

Moreover, government has only allocated Ush241m ($92,000) to the Uganda Tourism Board to market Uganda during the FY2013/14. This fades when compared to Kenya which invests $20m in marketing while Tanzania and Rwanda $23m and $5m respectively.

The East African Business Week
5-Aug-2013