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Changes to VAT in tanzania

There is a new Tanzania-imposed Value Added Tax (VAT) that applies to a number of previously exempt tourist services. Its hasty, unexpected implementation has caused pricing to change for Mount Kilimanjaro treks. The Tanzania Association of Tour Operators (TATO) provided us with the following article to further explain what this VAT means to tour operators and trekkers alike.

Changes to VAT in Tanzania

The Tanzanian government has thrown the safari industry into a state of confusion by introducing a value-added tax (VAT) of 18% to many tourist services previously exempt from VAT. The changes became applicable as at 1 July 2016.

The major problem is that tour operators were given only a few short weeks to implement the changes. This small window of time has created a multitude of issues – for example, most camping and Kilimanjaro operators are not even VAT-registered because their services were previously VAT exempt. They are therefore unable to issue VAT receipts to their clients.

Tourists who have booked and paid for their safaris (usually done months in advance) are being asked by operators to pay extra.

Many tourist services (although not accommodation) were previously exempt from VAT, but this has now changed, and as a result, tours with accommodation are 5% to 10% more expensive and most camping and Kilimanjaro tours are 18% more expensive.

This change in VAT laws could potentially damage an industry which Tanzania relies heavily on for generating foreign exchange. Tourism is one of the main revenue sources for the country and a substantial part of the country’s gross domestic product. Neighbouring Kenya offers substantially cheaper safaris and many great safari destinations, so a real fear is the long-term damage this could do to the industry in Tanzania.

TATO has said that due to an assortment of taxes, the country already charges 7% more than other safari countries in the region. The new VAT would mean a 25% difference in Tanzanian safaris compared with safari countries that have exempted these tourist services from VAT.

What is VAT?

VAT is a form of taxation paid by the end consumer. Essentially businesses collect VAT by adding it on top of their rates, but also pay VAT on products and services they purchase. If a business collects more VAT than it has paid, then it has to pay the difference to the government. And, if a business has paid more VAT than it has collected, it can reclaim the difference from the government.

Tour operators in Tanzania should be able to reclaim VAT from the government (if they pay more than they collect) but they have expressed serious doubts as to whether they will ever see a refund come their way. For example Ngorongoro Conservation Area Authority has not been issuing VAT receipts, while the Tanzania National Parks Authority is issuing receipts, but they’re missing the VAT registration numbers, which allow operators to reclaim the VAT.

From Thomson Safaris To Our Guests
June 15th, 2016

The Tanzanian government recently presented a budget proposal to parliament imposing a new Value Added Tax (VAT) on a wide range of tourism-related services, including National Park fees, transportation services, tourist guiding, and wildlife viewing. Shortly afterwards, it was announced that the new tax would come into effect on July 1st, 2016.

This decision was understandably met with dismay throughout the tourism industry in Tanzania, for a combination of reasons:

  • The short notice of the announcement makes it virtually impossible to adjust finances for guests already in-country, guests on imminent departures, and those booked for future travel who have already committed to their travel plans.
  • The new 18% VAT has an enormous impact on costs for certain services, forcing tour operators to significantly increase prices. This will impact new bookings and existing clients, and in turn could detrimentally impact national parks through reduced tourism revenue.
  • It was unclear which services the tax applies to, making it extremely difficult to interpret the new regulations and accurately calculate what the cost increases would be for planned itineraries.

Over the 35 years that Thomson Safaris has been in business, we have seen some enormous changes in Tanzania and many positive developments in the Tanzanian economy and society. However, it continues to be one of the poorest countries in the world, and over the years we have witnessed several well-intentioned, but poorly executed, policy decisions. It is almost impossible to accommodate such a drastic decision with so little time to adapt to the consequences, and we believe that a more gradual implementation of this tax would be a more effective strategy.

As part of TATO we were involved with in-depth discussions with the government to try and reverse the decision, or at the very least implement it in a more practicable way, so that the impact on tourism would be mitigated. Unfortunately, despite these efforts the policy was ratified, and even though the Tanzania Revenue Authority has been overwhelmed by (previously tax-exempt) companies scrambling to register so that they could continue to do business, the law came into effect on July 1st as scheduled. We will continue to lobby for a more workable solution, but in the meantime we must abide by the law as it stands.