VAT makes Zim expensive

The new VAT on hotel accommodation for non-residents has made accommodation bookings by foreigners unviable

The new VAT on hotel accommodation for non-residents has made accommodation bookings by foreigners unviable

Business Reporter
ZIMBABWE’s tourism products already cost 35 percent more than similar offerings from the region and Value Added Tax on accommodation for non-residents will worsen its profile as an expensive destination, Zimbabwe Council for Tourism has said.

ZCT president Mr Francis Ngwenya yesterday said Zimbabwe was considered a more expensive destination and the new VAT on hotel accommodation for non-residents had made accommodation bookings by foreigners not viable.

Mr Ngwenya pointed out that the VAT presented challenges for the industry in terms of product pricing, as any attempts to increase rates had been met with strong resistance.

He said in the tourism industry some contracts are signed at global travel shows for fixed periods and attempts to fiddle with prices damages relations.

In selected cases, operators try to share the cost with customers while in a majority of instances the hoteliers have had to find ways to absorb the cost while eroding profitability.

There is fear in the sector that the new tax will derail efforts to rebuild foreign tourist volumes from the current 240 000 to the golden era when arrivals reached over 600 000.

Most tourist operators were not prepared for the tax to kick in as Finance and Economic Development Minister had not indicated in his 2015 National Budget statement late last year that he would introduce the tax to give the operators time to plan and make provisions for the new tax. However, the tax had been announced in 2013.

“In our industry we go to travel shows and we do contract rates two-three years in advance. We needed to have had time to plan and factor those things and price accordingly.

“But even when you price accordingly, we have seen some resistance. Zimbabwe is an expensive destination because of the cost drivers, this (VAT) being one of them,” Mr Ngwenya said.

For instance, he said, one local authority in a major tourist resort had increased rates by

over 650 percent making it difficult for the industry to come up with attractive rates for tourist.

“We have been told (that Zimbabwe is

more expensive than others in the region) and when you compare our rates, you find that our rates are higher than where would like them to be.”

ZCT chief executive Mr Paul Matamisa said other destinations were cheaper because they used domestic currencies that were considerably weaker against major global currencies.

“So you find that we are not getting as much volumes as we should, so it (VAT) has a negative impact and we continue to engage the ministry of Finance at different levels for it to adjust it so that we can be competitive and continue on the path of growth,” he said.

He also said that the tourism industry was at the bottom of the value chain, making the sector a price taker, as it had little room to influence the cost of things that it consumes.

“So are we expensive? Of course in comparison (to the region) we do not have to hide it, you go to South Africa you find that their rates are right, you compare with ours for a similar product you find that yes, they are cheaper than here,” said Mr Matamisa.

He also said the country did also not appropriately align its pricing regime to the new

reality after dollarisation, as businesses carried over the profiteering mentality of the Zim-dollar era.

Tourism is an important pillar of Zimbabwe’s economy, contributing about 11 percent to the gross domestic product. 2014, the sector generated $827 million, but the Zimbabwe Tourism Authority says this can more than double to $1,5 billion it is supported.