COST OF DOING BUSINESS
Numerous taxes and levies on businesses in the travel and tourism industry are proving to be a major headache for investors, including multinationals, as the cost of operation remains high.
Both the national government and counties are seeking a pie of the sectors’ earnings, a move that does not resonate well with industry players.
Tourism establishments are paying the statutory 14 per cent Value Added Tax and an extra two per cent tourism levy to the Tourism Fund.
They also pay for business permits, National Environment Management Authority permit, liquor licence at county level, health and advertising, among other permits.
“Despite many levies being long-standing in nature, there has been a general increase in the number and scope of tourism-related taxes, fees and charges over the last couple of years. The higher taxes make Kenya as a destination too expensive,” Victor Shitakha, Kenya Coast Tourism Association chairman, says.
Industry players have since warned that the levies introduced by counties, coupled with already existing statutory taxes, are pushing up the cost of tourism products.
“The government needs to reduce too much burden on hospitality and tourism sector,” said Hasnain Noorani, Kenya Coast Working Group Chair and managing director for PrideInn hotels.
Noorani said Kenya risks losing business if prices offered are way above products offered by neighbouring and regional competitors, such as Tanzania, Rwanda, South Africa and other countries.
The tax burden is adding pressure on tourism establishments, which are feeling the impact of Covid-19 on their businesses, with reduced disposable income on households threatening to dampen even the domestic market, which the government is counting on to help revive the sector.
While President Uhuru Kenyatta has been encouraging Kenyans to travel, sample the country’s tourism sector, with the ministry cutting entry fees to game parks for local citizens and foreign visitors by 50 per cent for a year, not many can afford the luxury.
George Ouma, a Nairobi resident who traditionally made trips to the Coast with his family during school holidays and the December festivities, can barely afford a night at the luxury beach facilities.
“I have taken a 40 per cent pay cut from my employer during this Covid period. Right now the priority is housing and basic needs. Holidays can wait,” Ouma said.
He is one of the hundreds of Nairobi residents who currently cannot afford luxury spending and are rather focusing on rent and other basics.
Hotels are between a rock and a hard place on product pricing and making gains, with cheap attractive packages being one of the only ways to attract numbers.
“The cost of doing business is still high, yet people are seeking cheaper packages, blaming reduced disposable income. You are stuck between cutting prices and making sure you at least make a profit. It is a headache,” Leopard Beach Resort’s Joan Ndungu said.
With this, hotels, parks and other tourism businesses are not likely to earn much from the domestic market as the government expects.
Revenues are also expected to remain low as outlets will not be operating at full capacity to meet social distancing requirements, according to the Kenya Tourism Federation.
“Hopefully we are looking at getting something but it will not be full-blown because everybody is broke and everybody is cautious,” KTF chairman Mohammed Hersi said.
He projects the sector will recover from the October winter of 2021.
“For the next year, it is big trouble,” Hersi said.
In the domestic space, restaurants, night clubs and tourism facilities are reeling from the effects of Covid-19 as most either remain closed or are operating on a low scale.
This means millions of jobs are at stake as the year enters its last stretch.
Samuel Nguyo, who operates a cocktail bar and restaurant in Nairobi, wishes for the easing of restrictions by the government for his business to resume.
When measures to contain Covid-19 were put in place, including the night curfew and closure of bars, he sent all his staff home on unpaid leave.
Nguyo ventured into roadside fresh produce sales, a business that did not last a month before the county government ejected traders.
He is now in the online taxi business.
One of his dilemmas, when he reopens his ‘Mojitos Cocktail Bar’, is whether he will be able to win back his suppliers.
“Things are bad but we hope for the best,” he says.
Meanwhile, for the tourism industry, winter in Europe, which has traditionally sent residents to other parts of the world, including Kenya, for warmer climates, is a wait-and-see situation, as fears of Covid-19 infections remain.
With recovery only foreseeable in 2021-22, online campaigns remain a key tool for Kenya, led by the Kenya Tourism Board, in marketing the country globally.