VAT cost could scare away visitors – Survey

via VAT cost could scare away visitors – Survey | The Herald February 16, 2016

Golden Sibanda Senior Business Reporter
RESEARCH has shown that three quarters of tourists who recently visited Victoria Falls would not visit Zimbabwe again if the cost of accommodation, which is already high, is increased by more than 5 percent.

Hospitality operators have been subjected to 15 percent valued added tax on foreign visitors’ hotel accommodation since January 2015. But the majority only passed on 5 percent of the cost to the visitors to avoid losing business in what would have seen one of the economy’s few strong performing sectors going into a decline spiral.

The study showed that tour operators in Zimbabwe have already started feeling the impact of the tax with profits falling by between 10 and 15 percent, depending on the extent to which they absorbed the cost.

Hotels and lodges have on average registered decline in profits by about 27 percent last year compared to 2014, a development the businesses attributed to absorbing the additional cost.

In an effort to scientifically assess potential negative impact of the policy, the Zimbabwe Council for Tourism commissioned Zimbabwe Economic Policy Analysis and Research Unit to carry out a study. The study, based on views gathered from 145 tourists in Victoria Falls found out that 75 percent of visitors to the resort would not visit Victoria Falls again if accommodation rates are hiked by over 5 percent.

As such, the study concluded that there is need to reduce the VAT on foreign accommodation sales, one of the few performing exports, to a rate lower than 15 percent as in Kenya, which levies 14 percent.

“On average, increasing accommodation costs by more than 5 percent would see about 75 percent of the tourists visiting Victoria Falls either not visiting Zimbabwe again or reducing length of stay,” Zeparu said, “from the (short) average stay of 2 to 3 days,” it added. The study also established that any measure that changes the tourist average length of stay would also deny the country the full benefit of the tourist budget, currently averaging $1 900 per person per visit.

Already, Zimbabwe is now relatively a more expensive destination for tourists compared to regional countries due to an overly strong dollar, previously offset by exemption of local operators from the tax.

The country has also not fully recovered from negative perceptions that characterised the period of hyperinflation. Further, adding costs to the already high costs of visiting the country could drive them to regional neighbours, as tourists may opt to stay in those regional countries and only fly in on a day trip to enjoy the local tourist attractions and leave the country soon after.

As such, to avoid disrupting tourist arrivals, hotels and tour operators need to ensure that they absorb at least 95 percent of the additional accommodation costs emanating from the 15 percent VAT.

There has, however, been minimal impact to date as players absorbed additional VAT costs rather than pass the costs to tourists, which Zeparu said would have negatively affected the economy.

For instance, in the first half of 2015 Zimbabwe received 87 138 tourists from Europe and America and given that each spends about $1 900 per visit, it means the country received $165,6 million.

Treasury collected about $1,65 million from the VAT on foreign hotel accommodation in the first quarter of 2015, translating to $3 million to $4 million in the first six months, from accommodation tax, the bulk of which could have been lost had the tax been passed on to tourists.

The VAT on foreign accommodation has placed Zimbabwe in the same category as its competitors in the region with South Africa at 14 percent, Botswana 12 percent, Namibia 15 percent, but overall cost is lower in the countries because they use weaker domestic currencies. The tourism industry accounts for 11 percent of GDP in Zimbabwe.