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  • Tanzania imposes VAT on tourism services
Articles:

Tanzania imposes VAT on tourism services

29 August 2016

By Owen Murphy, Africa Desk Leader at BDO South Africa

From July 1, Tanzania imposes 18% Valued-Added Tax (VAT) on many previously exempt tourist services, including ground transportation, park fees, water safaris, guiding fees, camping fees and wildlife-viewing packages.

The imposition of VAT on these operators is a blow to the Tanzanian tourism industry as they were at a competitive advantage compared to their main rival Kenya, which implemented VAT on tourism services from 2014. If operators increase prices to maintain their margins, tourists will ultimately bear this cost. This burden will depend on input cost that is not subject to VAT, such as salary costs and zero rated items such as diesel.

For example, assuming that salaries (or non-VATable input costs) comprise 50% of the operators’ costs, prices to the final consumer would have to increase by 9.82% for the operators to maintain the same profits. Values would differ depending on the salary component of costs. An 80% salary cost component, for example, would lead to a 14.73% price increase, whereas a 20% salary cost component would lead to a 4.91% price increase. These figures ignore the impact of zero rated sales.

The impact is illustrated as follows:

 

Sales (VAT inclusive)

VAT Output Tax paid to Revenue

Income to Operator (after VAT paid to Revenue)

Cost of Sales

Services and materials (VAT inclusive)

VAT Credit claimed from Revenue

Services and materials (after VAT credit)

Salaries and other costs (no VAT effect)

Net profit

Pre June 2016

110

0

110

(100)

(50)

0

(50)

(50)

10

Post June 2016

120.80

(18.42)

102.37

(92.37)

(50)

7.63

(42.37)

(50)

10

Price Increase

9.82%

 

Looking to set-up a business in Africa? Need guidance. Contact our Africa Desk Leader – Owen Murphy at [email protected]

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