Tourism sector pushes for VAT reduction

The Zimbabwe Council for Tourism (ZCT) has warned that if the current value added tax (VAT) on foreign accommodation was not reviewed, tourist arrivals would decline by 75%, costing the economy over $100 million per annum.

BY TATIRA ZWINOIRA

Last year, government introduced a 15% VAT on accommodation for foreign tourists as a way to raise revenue for the cash-strapped government.

ZCT chief executive Paul Matamisa told Standardbusiness last week that the issue of VAT had affected the sector’s profitability. He said the industry was affected through a drop in arrivals, while some players chose to absorb the VAT burden either partially or wholly “to keep peace with their markets”.

“The industry believes it is prudent to start off at 5% and gradually raise it. VAT for foreign tourists must be reduced to 5% to allow for growth, while on the other hand allowing businesses to claw back to profitability,” Matamisa said.

A research done for ZCT showed that VAT on foreign tourist accommodation would result in a 75% drop in arrivals, particularly overseas tourists and the country would lose $124 million per annum.

Matamisa said overseas arrivals were still depressed. He said after 1999, a number of international markets retreated, leaving Zimbabwe in an abysmal tourism situation in terms of incoming business.

“We have been struggling to raise the arrivals to the 1999 levels when we had the highest arrivals from those source markets that hit a record high of 600 000 tourists. To date, on an annual basis we are struggling to attain 50% of that number,” he said.

“Lately, we have been creeping slowly upwards, but the best we have achieved from the entire overseas market is 295 898, which we got in 2015. This was still less than 50% of the arrivals we got at the peak in 1999.”

In response, government has tabled plans for the tourism industry to start charging on a sliding scale of between 0 and 15% in various currencies, preferably the South African rand.

Matamisa said the issue had to be approached holistically as the European market was the country’s major source of tourists followed by America.

“It is not as easy as people are saying and we are still engaged with the government to see how we can push it forward. There has to be a holistic approach to it. According to trends and statistics, our biggest source market is Europe, followed by the United States. So, it becomes tricky if we just look at the South African market,” Matamisa said.

“Tourists come to Zimbabwe from South Africa because their packages will be put together from South Africa, so the issue of incentives has to be put together holistically.”

In his January monetary policy statement, RBZ governor John Mangudya urged tourism players to charge tourists from China and South Africa in their native currencies to make the sector competitive.

Tourism and Hospitality Industry minister Walter Mzembi told Standardbusiness on Thursday that the industry was working with RBZ on the issue of currency and the sliding scale suggestion.

“We will look at a sliding scale for source markets currency by currency, not just the rand, to motivate the use of other currencies. What we are looking at, in the case of South Africa as a source market, are seamless products extended from Zimbabwe to South Africa in rands in terms of cost-effectiveness and pricing,” Mzembi said.

“To encourage the industry to accept the rands, we had offered a review, but on a sliding scale of 0 to 15% which is now in the hands of industry to review and accept. The industry is still assessing that proposal and is yet to come back to us. It is actually possible to have a sliding scale of 0 to 15% on the back of the acceptance of the South African rand from the industry.”

He said stakeholders would obviously have to do their own cost based analysis studies to see whether it was worth it and included the ZCT on meetings at the RBZ.

In 2015, ZCT polled 145 tourists staying at Victoria Falls and discovered 74% to be using international agents in making their trip, with only 10% preferring local agents.

The average budget for tourists was $1 900 per visit. however, ZCT found that 52% of them underestimated the costs and ended up spending more than their budget. The average stay for a tourist is two to three nights.

In Zimbabwe, pricing is the most expensive in the region due largely to the strength of the United States dollar.

As such, the benefit in using weaker currencies could make it cheaper for tourists, especially those from countries whose own currencies are weaker against the dollar, such as South Africa.

Nearly 36% polled by the ZCT in Victoria Falls indicated that they would either decide not to visit Zimbabwe or reduce their length of stay.

Zimbabwe Tour Operators’ Association president Wengayi Nhau said as a result of their decision to absorb the costs of VAT, their profits had dipped and affordability of packages became less competitive.

“It doesn’t only affect our profitability but also affordability on the part of the traveller/tourist as he is now paying 15% more. I am sure you are aware that the United States dollar being the base currency in circulation in Zimbabwe, is one of the strongest currencies in the world and actually the strongest in the sub region,” Nhau said.

“In principle, we put a package together first and then we have to apply 15% VAT on the package and in most cases we have had to cede up to 8% of our mark-up/commission towards the VAT as a way to keep the package within affordable levels.”

Board of Airlines Representatives chairperson Winnie Muchanyuka said in terms of flights, only domestic tickets were subject to VAT.

“Airline tickets for international travel are VAT exempt. Only tickets for domestic travel are subject to 15% VAT, for example Harare to Johannesburg is VAT exempt while Harare to Bulawayo has a 15% VAT charge. Air travel is perceived as a luxury and is easily affected by changes in the economy like cash shortages, decrease in disposable income, currency restrictions, total cost of travel, including landing arrangements at the destination,” Muchanyuka said.

“When individuals or companies face such challenges, travel is often a target for cost reduction. We airlines are facing that currently where individuals and companies are curtailing their travel spending or reducing the frequency of travel.”

Source: Tourism sector pushes for VAT reduction (01/05/16)