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Economy

VAT, insecurity signal tough times for tourism

Tourists sample Kenyan delicacies at the Outspan Hotel in Nyeri. Insecurity and value added tax spell gloom for tourism players in the second half of this year. FILE
Tourists sample Kenyan delicacies at the Outspan Hotel in Nyeri. Insecurity and value added tax spell gloom for tourism players in the second half of this year. FILE 

Tourism players fear the sector may not recover in the second half of the year because of insecurity and value added tax (VAT) on leisure products and services.

The sector saw a depressed performance in the first half of the year and analysts are concerned that the tax will make Kenya less competitive.

“The tourism sector has to add 16 per cent on their supplies, a part of which will have to be passed on to the tourist,” said Nikhil Hira, tax partner at Deloitte.

Tourism services including transport, commission earned by tour and travel agents, park and conservation fees and other services provided by hotels are now subject to the tax introduced on September 2.

A decline in tourist arrivals saw economic growth slow down in the second quarter to 4.3 per cent, compared to 4.4 per cent in the same period last year, and much lower than the 5.2 per cent growth in the first quarter of the year.

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The Kenya National Bureau of Statistics (KNBS) said a major contraction in the tourism sector had weighed down on growth. Tourist arrivals in the first half of the year dropped by 12.1 per cent to 495,978 compared to the same period last year.

February and March were the worst- hit with declines of 30.5 per cent and 26.9 per cent, respectively, due to the General Election.

Despite the gloom in the tourism sector Treasury secretary Henry Rotich is still upbeat that overall economic growth will reach 5.5 per cent, powered by agriculture and services.

Tourism sector players believe the new tax law will have a bigger effect on tourism than the recent terrorist attacks in Nairobi.

“The VAT Act will have a bigger effect than Westgate. Our packages will now increase because of the tax element, which could have an impact on forward bookings,” said Kenya Association of Hotel Keepers and Caterers chief executive Mike Macharia.

He said that the industry draws up business contracts with international agents at least one and a half years in advance and would now have to go back to the market and adjust the prices.

“The tourists can opt for other destinations like South Africa where they get tax refunds,” added Macharia.

Mr Hira said that the tourists who come on packages are the ones likely to be affected, as they are price sensitive, and make up a big percentage of visitors, especially at the Coast.

“It might not have an impact on high-end tourist but package tourism could be affected. It’s all about how competitive we are and package the country to attract the numbers,” he said.

Also affected by the new Act is the construction of new properties. In a bid to attract investors supplies for hotel construction were exempt, however, this has been reintroduced at a time both local and international hospitality companies are putting up new properties to meet increased demand.

Service providers have already revised their fees to reflect the changes. TPS Serena sent out an email early September with the new packages for both air and ground packages extending to January 2014.

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