Published On: Fri, Aug 19th, 2016

President Magufuli’s proposed VAT on tourism and transit cargo could educate children

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By Gwyneth Rose

With a 17% contribution to gross domestic product (GDP) and about 25% contribution to foreign exchange earnings, the importance of tourism to Tanzania’s economy cannot be overemphasized.

The 18% Value-Added Tax (VAT) on tourism services and transit cargo through Tanzanian ports has been both strongly opposed and hotly debated since it came into effect on July 1 this year. The tax has given rise to bitter criticism especially from tour operators.

The tour operators are of the view that the tax would have a devastating effect on tourism which is the country’s leading foreign exchange earner. However, the Minister for Natural Resources and Tourism, Prof Jumanne Maghembe, has allayed fears that the tax would cause a decline in tourist arrivals—at least in the short term—saying that the number of visitors was still good. He added that the VAT which is at the centre of the row between the government and tour operators was discussed by the parliamentary committee responsible for tourism last year but no complaints had been raised then.

President John Magufuli has said that the Tanzanian government was determined to exhaust all available sources in its quest to increase revenues to fund development projects—this would benefit all Tanzania’s citizens. Speaking at a police pledge-taking ceremony, he commented: “It’s better to have 500 000 tourists who pay tax than host two million who do not.” Also, a government official has said that key stakeholders in the tourism sector were consulted before the tax was introduced. Government has expressed its willingness to discuss the issue, but to what extent it would seriously consider waiving the tax is debatable.

The European Community Travel Agents’ Association (ECTAA) a group of associations of national travel agents and tour operators—about 70,000 enterprises in Europe—has warned that the new VAT on tourism services could reduce the number of visitors from the European Union by 50%. This translates into an estimated 2 trillion Tanzanian shillings based on last year’s tourism. So far about

8 000 tourists have cancelled their holidays to Tanzania, denying the country USD 660,000 the Tanzania Association of Tour operators (TATO) has said. The ECTAA has called on the Tanzanian government to scrap the VAT or else they would rebook their customers to other African destinations. Kenya dropped VAT on tourist services having initiated it last year.

It is clear that this is a very prickly subject. One must remember, however, that Tanzania still faces numerous development challenges: the alleviation and eradication of poverty, health, housing, the empowerment of women, good health systems, increasing the access to water, improving the availability of electricity, and raising the quality of education. The Tanzania Vision 2025 aims to create a well-educated nation with a high quality of life for the Tanzanian people, good governance through the rule of law and a strong and competitive economy. It can only achieve what is set out in the Vision if it has the revenue to do so.

Tanzania depends substantially on foreign development aid. It is one of the largest recipients of foreign aid in Africa and approximately 30% of government spending depends on foreign aid.

In my opinion, in the face of dwindling foreign aid, Tanzania must find alternative sources of revenue to lessen its dependence on foreign aid and lay a solid foundation for sustainable development.

I think President Magufuli has taken a bold step in exploring other sources of revenue to provide an injection of funds to meet the country’s socio-economic challenges. The money for these pressing needs must come from somewhere and it seems to me that he is exploring alternative methods that would benefit the whole country in the long run. He needs to be supported and commended in his quest even if some of the measures he is forced to take prove to be unpopular.

In my view, it is crucially important for Tanzania’s future to create new revenue streams to fund the necessary development and to break the cycle of dependence on foreign aid. One sustainable and secure way of providing the funds for these challenges is to utilise Innovative Financing for Development (IFD) to create funding mechanisms using a country’s own resources without increasing foreign aid—placing micro-contributions on globalised activities. The micro-contributions are levied in key globalised sectors—offering the best opportunities in terms of volumes and growth potential to create sustainable, dependable new revenue streams. Some of these activities are financial transactions, mobile telecommunications, airline tickets etc. There are many others. The beauty of these measures is that they do not impact on the local population and service providers.

A great number of untapped resources can be mobilised in this way. Micro-contributions on enormous volumes of transactions, aggregated, can make a mega difference.

About the Author

Gwyneth Rose
Gwyneth is a communications consultant and writer for media. Gwyneth’s passion is to write about solutions on how African countries can stimulate their economies through the use of innovative finance and cutting edge technology. She is passionate about African politics and what drives policy making.

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