Uganda brings back VAT on hotel accommodation

BUDGET RESTORES VAT ON HOTEL ACCOMMODATION

(Posted 14th June 2013)

The budget announcement yesterday afternoon, made by Uganda’s Finance Minister Maria Kiwanuka, that the VAT exemption for hotel accommodation will be withdrawn, has sent shockwaves down the spines of the hospitality industry. VAT in Uganda presently stands at 18 percent and if the proposal is passed by parliament into law, the cost of hotel accommodation in the country could rise by a corresponding figure.

This would translate into significantly higher cost for tourists visiting the country as well as for conference organizers and conference participants. Combined with a further tax increase on petrol and diesel by 50 Uganda Shillings per liter which will undoubtedly find its way too into quotations for transport, the net result will be that visits to Uganda will become even more costly.

In addition was VAT introduced on the supply of water, again impacting heavily on the cost of running restaurants and hotels, as will the introduction of VAT on wheat flour, hitherto exempted as a basic necessity.

‘We are studying the implications of the various tax measures proposed by the minister in her budget speech yesterday’ said a regular contributor and hospitality source from Kampala before continuing: ‘By the look of it a range of tax changes will affect our pricing of services. Hotels use a lot of water and when VAT becomes applicable we need to pass the cost increase on to our tariffs. When flour, which we use for bread and pastries and in cooking becomes 18 percent more expensive after VAT is introduced, this added cost will go into our prices for meals to recover the extra expense. When fuel, which we need for our backup generators, becomes 50 Shillings more expensive, that also must be passed on to our clients over tariff increases. Our patrons and clients can expect to dig deeper into their pockets for our services and not because we want to raise tariffs but because of the tax measures government has now proposed. There is still a chance that parliament may reject VAT on water and flour, but for the rest of the measures, I am sure they will be approved’.

Across East Africa were the budget presentations to the respective parliaments yesterday made at the same time in Kampala, Nairobi, Dodoma, Kigali and Bujumbura, in line with recent practice among EAC member states to harmonize these dates. Most of the major audit firms in the East African region will hold breakfast or lunchtime sessions on Friday to give their initial assessment on the impact of the respective budgets on the business environment to their clientele. Key business associations like the Chambers of Commerce and Industry and the Private Sector apex bodies too will hold member sessions with either the Finance Ministers, their deputies or key personnel from the ministry in attendance to clarify on issues raised and answer questions.

What is clear though, from a quick look across the region, is that the five governments have proposed significant increases in infrastructure spending, which has to be financed through increased revenues, making sure that not only will there be no more free lunches, but that the lunches will cost a lot more in the future. Watch this space.