Zimbabwe to review 15% VAT on foreign tourists

via Govt to review 15% VAT on foreign tourists – The Standard April 27, 2014 by Kudzai Chimhangwa

GOVERNMENT is in the process of reviewing the 15% Value Added Tax (VAT) it levied on the tourism sector late last year, amid indications more foreign visitors are cancelling international bookings to Zimbabwe.

The levy has led to an outcry by tourism sector players who argue that the 15% VAT on foreign tourist arrivals has made the country an uncompetitive and expensive destination for tourists.

Finance minister Patrick Chinamasa made the proposal in the 2014 national budget presentation last year in December.

Tourism and Hospitality Industry minister Walter Mzembi said he met with his Finance counterpart Chinamasa last week to discuss the reviewing of the measure.

“He [Chinamasa] asked us to do more work on the 15% VAT on foreign arrivals. A committee has been set up by the finance ministry to do a thorough review of the move and a cost-benefit analysis,” he said.

Mzembi said the ministry’s argument was about the timing of the move and its impact on the tourism sector which was still in its growth stages.

“Such moves should be gradual and futuristic looking as failure to do so will result in booking cancellations,” he said.

Government, which is facing serious challenges in revenue collection from a rapidly shrinking economic base, introduced the measure late last year in a bid to tap into the fortunes of the tourism sector.

Tourism’s contribution to the economy is expected to grow to 15% by 2015.

Analysts posit that the 15% VAT charge will dampen average hotel room and bed occupancy levels expected to improve this year to 61% and 42% respectively.

The increased taxation has led to an increase in prices for tourists’ accommodation and related tourism services.

Players in the sector argue that besides rendering Zimbabwe an expensive destination as compared to other countries in the region, the sudden change in rates to international buyers who had already booked before the levy did not augur well for the sector.

“We met them [finance ministry] last week. I facilitated the meeting which had two major items on the agenda. This was at a time when the issue of special economic zones was being concluded. Major aspects [of the discussion] were statutory instrument 172 and 173 with regard to the importation of capital goods,” said Mzembi.

He said the tourism sector’s submissions were made in order to review what should qualify as capital goods.

“In that regard, we were successful and we are making positive headway,” he said.

The rebate of duty on capital goods was re-introduced at the beginning of this year subject to review after a period of 12 months.

The tourism sector began to pick up during the era of the inclusive government in 2009 after a decade-long economic meltdown.

Customs duty on motor vehicles imported by safari operators was also suspended, a move tourism players said was a positive development for the tourism sector as it enabled the sector to recapitalise and retool, thus setting a firm base for growth.

The international travel bans and warnings previously issued were scrapped following the modicum of economic stability brought about by the government of national unity.

Government introduced VAT in 2003 but the tourism sector was exempted from tax payments as it was duly recognised as an exporter.

The reduction in tourist arrivals as a result of the increase in prices will subsequently lead to reduced growth for the travel and tourism sector.

This development, experts argue, will contribute to increased unemployment levels which are estimated to be well above 80%.