The perfect storm: Low occupancies, high taxes and little tourism marketing money

Just a few weeks ago, Ms. Jean Byamugisha, Executive Director of the Uganda Hotel Owners Association, during an exchange of emails, lamented the fact that low occupancies, especially in upcountry hotels and safari lodges in and around the various national parks, was alarmingly low. She attributed this to the sudden introduction of an 18 percent Value Added Tax (VAT), one which tourists, unlike in other countries, cannot claim back and which subsequently make accommodation as part of their safari more expensive by nearly 20 percent.

“This is why we are fiercely lobbying for VAT on upcountry hotels to be zero rated with the hope that this should bring down the cost of doing business and the cost of the room rate,” Ms. Byamugisha said in early March, during which time average occupancies had sunk as low as 30 percent with some locations down even further to between 13 and 17 percent.

Now the struggle to survive has reached critical levels, and hotel operators have taken their fight to the government. Ahead of the annual budget reading, key stakeholders once again impressed upon government that their dire warnings of last year, ahead of the introduction of the 18 percent VAT, were not just empty threats as some members of parliament had alleged at the time, but 12 months later have shown serious consequences vis-a-vis hotel and lodge occupancies.

The hot pre- and post-election period did not help either so far, as tour operators from abroad had quietly diverted traffic to, for instance, Rwanda for gorilla tracking, even though there was in retrospect no cause for alarm at all as the government of Uganda had made good of the promise to keep the country safe from riotous protests.

However, the more recent and hastily-passed amendment to the finance bill currently in place, exempting members of parliament from paying taxes, amounts to giving themselves a 47 billion Uganda shillings (close to US$465 million) present, shortly before the term of the current parliament expires, money which in fact should have been invested in tourism marketing and for lowering taxes and the cost of doing business for Ugandan hotels.

City hotel occupancies are said to be within the financial viability ranges, while it is mostly the safari lodges which have taken a beating.

Other contributing factors named by the organization were the excessive visa fees, almost stealthily passed a year ago. Again, warnings of the impact of such measures were ignored or pushed aside. At US$100 a person, the entry fee into Uganda is now at the same level as the common East African tourist visa, which at the same cost allows visits to Kenya and Rwanda in addition to Uganda, but where according to many reports immigration officials made it difficult to get such visa on arrival, at times demanding – illegal – proof that visitors would indeed go to see the neighboring countries.

Funding for tourism marketing has also been described as too low, although, the funds sharply raised questions that were promptly asked by stakeholders to what extent the Uganda Tourism Board would be able to absorb added money and turn it into a marketing value addition to actually generate more arrivals through a consistent trade fair and sales show attendances than splashing the money away in one-off activities.

The three areas combined could end up in a perfect storm for the industry, should government once more ignore private sector warnings, and a reversal of fortunes for the sector, could lead to job losses and sharply lower foreign exchange earnings, besides turning investors for new lodges or resorts on some of the spectacular islands on Lake Victoria away.

Outgoing Tourism Minister, Dr. Maria Mutagamba, who did not stand for re-election in her Rakai constituency as she is preparing for retirement from active politics, has carried the message of the private sector into the cabinet and promised that the Prime Minister’s office will deal with the grievances, however, it will be the finance bill tabled soon during the annual budget reading when the industry will learn if indeed the substantive changes they asked for will be incorporated, or if VAT and visa fees are maintained, they need to look into a doubtful future.