1 August 2017

Uganda: Hoteliers Outside Kampala in Fresh Push for Tax Waiver

Uganda hoteliers are back to the drawing board to lobby the government to cut tax on upcountry hotels and lodges citing rise in operating costs amid low occupancy rates.

Parliament turned down a presidential directive that the facilities be exempted from the 18 per cent value added tax, which would have been reflected in the new budget.

The chairperson of the Uganda Hotel Owners Association Susan Muhwezi, said the facilities remain unoccupied most of the year, but the operators still have to meet overheads like electricity, water and staff salaries.

The association's data shows that hotels outside Kampala are operating at 28-30 per cent occupancy, and safari lodges in game parks at 7 per cent, and only rising to 17 per cent in peak seasons.

At the end of 2016, the national average occupancy rates had fallen to 58 per cent in Kampala, but even then, this figure is boosted by hotels like Serena and Sheraton which can be occupied 100 per cent and above 80 per cent respectively.

Ms Muhwezi argues that in recent years, meetings, incentives, conferences and events (Mice) tourism, which are limited to Kampala, has grown as upcountry hotels and lodges register drops in bookings.

The executive director of Uganda Hotel Owners Association Jeanne Byamugisha said that for a hotel to break even, it must operate at 40 per cent occupancy, meaning that only hotels in Kampala are breaking even.

"This is why we are lobbying for tax exemption for lodges outside Kampala that are barely breaking even," she said.

Five-year exemption

At the Presidential Investor Round Table on November 3, 2016, hoteliers sought a five-year exemption from VAT to allow the industry to grow.

In response, President Yoweri Museveni directed the Ministry of Finance, Uganda Revenue Authority and Uganda Investment Authority to implement this exemption in the 2017/18 financial year.

The Treasury made a range of tax amendment proposals on VAT, which were approved by the Cabinet for the tourism sector.

The tax amendment proposals from the Uganda Tourism Board and the lobby groups under the tourism sector appeared to be yielding positive results.

However, Secretary to the Treasury and Permanent Secretary Ministry of Finance Keith Muhakanizi told The EastAfrican that the Treasury was not behind the decision to deny exemption of VAT to the tourism sector.

"Don't ask me, ask parliament. They know why," said Mr Muhakanizi.

The amendment sought to exempt VAT on the supply of tourism services, access to tourism sites, tour guides and game drive services -- all rated at 18 per cent VAT, which, according to Junior Finance Minister David Bahati,

"was made to boost the tourism sector with "service providers being able to use that tax exemption in marketing and promotion."

But in April 2017, when they were tabled before parliament, the Committee on Finance, Planning and Economic Development denied this exemption.

"The tourism sector, which is one of the major foreign exchange earners for the country, requires government support in terms of good infrastructure, roads, airports, tourist roads, security .... The sector is already benefiting from VAT exemption on hotel facilities.

"This exemption should therefore not be granted so that tourism can contribute to the services it requires from government," the committee's report reads.

But at issue is the state of Uganda's economic growth which slowed down to 3.9 per cent in the past financial year, from a projected 5.5 per cent.

The slowdown, among other things impacted revenue collection, with the tax body registering a deficit of Ush457 billion ($128.49 million) for the 2016/17 financial year.

"The argument for denying us the exemption is that the government did not see which other source to get this money from if the exemption was granted," said Ms Byamugisha.

Hospitality sector

URA data shows that over the past three financial years, the hospitality sector has been contributing a substantial amount in VAT alone -- yielding nearly Ush60 billion ($16.87 million) last financial year.

Players argue that this tax has negative implications for the competitiveness of Uganda's tourism sector compared with that of its East African neighbours, or even Southern Africa.

An official at Marasa Africa which boasts high-end properties in Uganda and Kenya said their packages in Uganda are more expensive than Kenya.

For example, the discounted rate for local tourists at Paraa Safari Lodge in Murchison National Park is $200, while foreigners pay close to $400 per night, yet for $600, foreign tourists can get three days in Kenya.

"And that's largely because of VAT. We are competing for the same tourists with other countries, so they would rather go to Kenya, South Africa or Botswana," the official added.

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