Uganda Tourism at Cross roads

IN 2012, almost 1,196,765 tourists visited Uganda compared to 1,151,356 in 2011. This number represents an increase of almost 4% over the previous year.

Tourism brought US$834m into the economy in 2012 compared to US$805m in 2011. It is presumed that overall, each visitor to Uganda spends about US$800 per visit thus representing 4% of total GDP. Tourism’s total contribution to GDP which incorporates indirect and induced imports stood at US$1.7 billion in 2011 which was equivalent to 9% of total Ugandan GDP with corresponding figures for Rwanda, Tanzania and Kenya being 8.4%, 13.3% and 13.7% respectively.

The writer says Efforts must be made to increase funding to the sector if Uganda is to remain relevant in the tourist trade

This is an indication that the tourism industry is not only continuing to grow but is also now recognized at the highest level for its significant impact on the Ugandan economy albeit the continued meagre funding.

Regionally, Kenya is Uganda’s number one Tourist Market with 383,369 visitors, followed by Rwanda with 256,004, Tanzania 79,795, Sudan 43,258 and DRC with 42,258 visitors. On the international front 55,912 visitors came from USA, 42,508 from United Kingdom, 24,849 from India, Germany 11,701, while 10,186 came from Canada, 8,275 from Netherlands; 8,645 from China, Italy 6,732; Sweden 5,866 and 5,094 from Belgium.

Of the 1,196,765 who visited Uganda last year, only 182,149 were able to visit our National Parks as compared to the 207,994 that visited the parks in 2011. Obviously even these numbers are contestable as there is a margin of error through double counting where on many occassions some tourists have been counted as different people yet it is the same tourist visiting a number of national parks.

In as much as the above statistics have made government identify the tourism industry as one of its key priority economic sectors, there is little to show from its input. From Hon. Maria Kiwanuka’ s proposed budget for financial years 2013 / 2014, it is evident that government continues to deliberately under fund tourism. Efforts must be made to increase funding to the sector if Uganda is to remain relevant in the tourist trade. Government continues to behave like a herdsman that keeps milking his cows without feeding them. What would you expect from such a cow? It is surely not enough for government to say so much about tourism and the economy’s growth without making something tangible for it to prosper in real terms.

While the 2013-14 Budget contained some benefits for tourism these were tempered by a combination of tax increases and omissions that represent a missed opportunity for the industry as a whole.

In rural Uganda where the road network is still very poor, services are not up to international standards, Electricity and water not readily available one would ask is there any value addition. Why is government adding 18%VAT on up country accommodation well knowing this will make it difficult for tour operators to attract tourists and quality labor to employ in such remote places? Until some of these issues are solved, we feel that a value added tax is not applicable to these investments.

Tour operators normally sign contracts with foreign wholesalers (tour operators) for a period ranging from one to two years and others three years. The contract rates are agreed upon normally to run from 1st January – 31st December of every year. Based on this information, the foreign tour operators make expensive brochures and undertake very expensive marketing strategies to market our packages. To many, Uganda is still a blank page out there. Many a time we the tour operators (Uganda’s un paid Ambassadors) spend a lot of our money traveling all over the world marketing Uganda as a prime destination. It is important that government recognizes our efforts and realizes the fact that we are still struggling to get tourists and as such cannot afford to be perceived as expensive.

In South Africa VAT is reclaimed at the point of departure. In Kenya and Tanzania they have also rejected the proposed 18% VAT. It’s also important to note that these countries have huge budgets for marketing tourism which we don’t enjoy. How will we compete if our products are more expensive?  Our humble request is that these efforts are recognized and the government suspends the issue of VAT on hotel accommodation upcountry for now. Up country hotels do charge VAT on the food and drinks they serve any way. An additional 18% VAT on accommodation will be unrealistic from a business point of view. Why implement the tax in the middle of the year?

As a country, we stand to lose our tourism market share if this VAT is implemented in this manner. It has cost us a lot of money to capture this market and we are not sure we can recapture it that easily once it’s lost. Government can choose to be a little greedy but eventually lose even what you had planned to achieve.

Over the weekend, I met Mr Silajji Kanyesigye, the Manager Medium Taxpayer’s / Domestic Taxes Department who told me he was working on behalf of the Ministry of Finance to better understand the implication of this 18% VAT on up country accommodation. I took him through the costing and showed him how this tax is causing tour operators a loss ranging from 3 – 9%. He concurred with me and assured me that he was to present his findings to the Ministry of Finance.

I told him if government continues with this, we expect tour prices to increase due to the cascading effect of the 18%VAT tax increase on up country accommodation resulting in an adverse impact on the travel and tourismindustry as a whole. The increase in tax will not only make Uganda noncompetitive as compared to countries like Tanzania, Kenya, Rwanda and South Africa but will also show inconsistency and breach of contract from our international whole salers perspective.

Murchison Fall National park. Tourism is recognized at the highest level for its significant impact on the Ugandan economy albeit the continued meagre funding.

This tax increase is one of the worst business decisions. When the whole world including Kenya, South Africa, Tanzania, Rwanda are inviting tourists to their country to fight slowdown in their economies, we are making ourselves less competitive with burden of taxes on Tourism sector. I wish our government would realise sooner the importance of tourism. The Tourism Sector worldwide is Zero rated since they already pay VAT on fuel, beverages, park fees, permits to mention but afew. Tanzania one of the East African countries did introduce the same 18% tax on accommodation but later scrapped it after the key players in the tourism fraternity realized the damage this could bring to their economy.

While we recognize the budgetary need for additional funds by government and for all to contribute, it is our hope that other sources can be found that will not damage this vital sector of Uganda’s economy and diminish its ties to the international community. Government tax incentives need to be maintained for another 10 years so as to be able to stimulate investment in rural areas or alternatively withhold it for the next 2 years until contracts already signed expire. Tax incentives for up country accommodation are partly the reason why several hotels sprung up in the rural areas. If we are to reap the benefits, this move needs to be sustained until there are more investments and those that are there have recovered their investment capital.

 By Bruce Amp