Removal of VAT on Uganda hotels is a good move

Uganda Government’s move to remove Value Added Tax (VAT) levied on upcountry hotel accommodation is laudable.

The move offers relief to tour operators, who have been locked out of business and signals government’s willingness to listen to the private sector’s queries with a view to acting upon them.

Tourism players have largely tagged the sector’s performance to poor marketing skills in addition to limited resources allocation by the government. But the latest move shows that government has not only stopped at hearing their pleas, but also worked on them.

The 18 per cent VAT on hotel accommodation that was reintroduced in the 2013/14 Financial Year was meant to raise Shs6 billion in addition to widening the tax base. This had made accommodation packages more costly, discouraging foreign firms from paying the fees that were not previously captured in their quotations because they booked without the knowledge that the VAT would be introduced.

The VAT was also earning Uganda the label of an expensive tourist destination in a region where neighbouring states like Tanzania do not levy such a tax. The removal of the tax is expected to improve the tourism sector’s revenue which tour operators say has been low. Although the sector brought in a minor increase in revenue, last year of Shs2.2 trillion (about $834m), up from Shs2.1 trillion (about $805m) in 2011, its 2013/14 budget allocation was slashed. The sector received Shs10.8 billion for this financial year (2013/14), down from Shs10.9 billion in the previous year.

The body mandated to market and brand Uganda as a preferred tourism destination— Uganda Tourism Board – also saw its budgetary allocation reduce to Shs1.4 billion from Shs1.8 billion in the previous financial year.

However, Kenya invests $23 million (about Shs58 billion) for marketing in marketing the destination, $10 million (about Shs25 billion) for Tanzania and $5 million (Shs12.6 billion) for Rwanda, which all reap more than Uganda from the tourism industry due to their strong marketing.

The government’s move is also expected to improve the country’s global ranking. But this will only be possible if the tourism players aggressively market the country’s unique attributes as a tourism destination with the resources they’ve been given. Indeed, the potential that the tourism industry presents has not been fully exploited.

The Monitor Newspaper
4th-Dec-2013