Tanzania: Tourism Players Worry About VAT On Services

Tourism players have expressed concerns over government plans to impose Value Added Tax on tourism services saying the move will be inimical to growth of the sector which currently leads in foreign exchange earnings.

Tanzania Association of Tour Operators (TATO) Executive Secretary, Sirili Akko, said in a statement that the VAT plans for tourism industry would be counterproductive and will hamper growth of the sector which contributes to more than 17 per cent of the total economic output. "... the Tanzania Association of Tour Operators (TATO) wishes to express serious concerns on the cross cutting negative consequences of the tax measures on the tourism industry which currently contributes more than 17 per cent of the Gross Domestic Product (GDP)," he said in the statement.

He said TATO, among leading tourism players, was worried they will lose their business to Kenya and other tourist destinations where VAT in tourism is zero-rated as VAT on the tourism services would make Tanzania a more expensive tourist destination.

"Charging VAT on tourist services will make them expensive and place the Tanzanian tourism industry in a disadvantaged position due to regional and international parities.

"This works against the government goal of increasing tourist numbers to 2 million in 2017. It is also worth to note that so far Tanzania is still below the target in 2016 in comparison with the 2013/4 tourists numbers.

According to him, Kenya had imposed VAT on tourism services in 2015 but rescinded the move after learning it was counterproductive. Since then the neighbouring country seems to be regaining their competitiveness in the sector.

"Kenya learned a hard lesson in 2015 when it imposed VAT on tourist services, thanks to a quick rebound which seeks to restore their competitiveness and glory in the tourism sector," he said adding: "Tanzania should avoid the same mistake, otherwise our neighbours will capitalize and have a free ride on our mistakes."

Unveiling the 2016/2017 government budget proposals in Parliament in Dodoma on Wednesday, the Finance and Planning Minister, Dr Phillip Mpango, said the government would impose VAT on tourism services, including supplies of tourist guides, game driving, water safaris, animal or bird watching, park fees and ground transport services in the coming fiscal year.

The TATO Executive Officer said the organisation was urging the government to reconsider the plan for VAT on tourism services as that would risk the reputation of Tanzania as a reliable safari destination and cautioned that it would have long-term negative consequences which will not be easy to correct.

"The nature of tourism business does not allow risking the trust gained at the high cost of time and resources. It will be very difficult to rebuild the reputation as reliable safari destination after a year of trial if we allow this current move."

"We, wish to further explain that the impact will go down to the social cohesion as it will affect employment and entire value chain particularly from ordinary people's point view.

Tourism is the leading sector in generating foreign exchange for Tanzania. Available statistics indicate that it attracted an income of 2.04 billion US dollars last year, up from 1.9 billion dollars in 2014.