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“Government to resolve tourism barriers”
The highly anticipated Ethiopian Public Private Consultative Forum (EPPCF) on the tourism sector heralding the motto ‘The Ethiopian Tourism Sector: Challenges and Recommendations,’ was convened on April 8 at the Sheraton Addis, in the presence of relevant government officials and representatives of the private sector. The discussion at the forum raised issues concerning the significant challenges that the sector faced in regards to its development and recommendations on how to tackle these problems. It was fruitful in the sense that previous consultative forums had focused on other issues.
Individuals from the private sector, representing tour and travel operations, hotels and the hospitality industry in general, brought to the fore the problems they have come across and are still grappling with and expect the government to resolve. On the other hand, government officials, which were part of the forum, listened to the problems and recommendations offered from the other side and promised to address the issues raised on the day.
How to make Ethiopia one of the five major tourist destinations, increase tourism earning
Like similar events during the past, the forum commenced with a presentation that demonstrated the difficulties the sector was facing which needed to be addressed by the government and actors of the sector alike, and recommended solutions. Ethiopia is said to have the potential of becoming one of the major tourist destinations in the world, especially in three areas; cultural tourism, natural resources tourism, and business and conference tourism.
In the Growth and Transformation Plan (GTP), the government has set a target to create 3 million new job opportunities, of which 1.8 million or 60% percent of the job is expected to arise out of the tourism sector alone. The number of tourists that are expected to visit is predicted to reach one million by the end of 2015, double that of 500,000 visitors which arrived in the country at the beginning of the GTP (2010).
According to the GTP plan, Ethiopia had to become one of the five major tourist destinations on the continent by 2012, while it was indicated that current statistics showed that the country is placed 19th as a preferred tourist destination in Africa.
On the other hand, by the end of the GTP, the country is expected to earn up to USD 3 billion from the tourism sector, while earnings had only been USD 300 million at the beginning of the GTP.
Lack of skilled manpower, inadequate and inefficient promotion at the international level, deficiency in coordination with a lack of implementation of nation-based tourism quality and standards were some of the root causes. Other problems like the non-existence of a proper national tourism statistics and information, the correct definition of the term tourist which is having an impact on the private sector in terms of taxation and tax regulations and gaps in implementation have also been mentioned. Some attendees cited that lack of adequate lodges in national parks and tourist destinations booking cancelation, as well as tourist visa delay as core problems in the sector, in their paper presentations.
A Tourism Development Fund
During the presentation by Teshome Beyene, head of EPPCF, a tourism development fund should be established to undertake significant market expansion with the direct involvement of the private sector.
He suggested that offices for specifically promoting tourism need to be opened in various countries apart from Ethiopian embassies. For comparison, he cited some African countries, which have such offices in countries where they could potentially attract tourists. “But Ethiopia does not have a single office abroad for such purposes,” Teshome said.
ETOA, ERCA TAX contention
The major issue that was raised at the forum was the tax issue, which has given rise to disagreements between the private sector, especially between tour operators and the Ethiopian Revenue and Customs Authority (ERCA).
Tour operators complained about the VAT (Value Added Tax), which was imposed by ERCA, on the tour operation business. It is to be remembered that this particular issue was one of the hot topics a few months ago when ERCA demanded VAT payment of about 98 million birr allegedly accrued by around eleven major tour operators.
The Ethiopian Tour Operators Association (ETOA) board argued that its members should be exempted from VAT payment due to the fact that they generated much needed foreign currency like other exporters (service export, as they claimed), and need to receive the same exemptions, if the sector is to develop according to plan. In line with export promotion initiatives of the government, most sectors engaged in exports enjoy tax exemption privileges, the draft report explained. “The Ethiopian tax proclamation, article 7.2a states that the export of goods and services, to the extent provided by regulation, shall be charged with tax at a rate of zero percent. However, the tourism sector does not enjoy the same privileges as others involved in the export sector,” the report added.
Currently, ERCA has billed over ten travel and tour companies for accrued tax calculated from four to five years back, in arrears. This accrued tax was calculated using the new VAT scheme for the sector.
An official representing the tax office said they will look into the matter and promised that most of the problems that the sector faces will be resolved. “The authority will readjust the tax calculation system,” he said.
One of the tour operators who attended the event informed Capital that ERCA had already agreed to re-evaluate its previous decision.
Eight years ago, a regulation which stated that tour operators had to pay VAT from their commissions, was ratified. This meant that they only paid tax on the profits they actually made after paying all other businesses in the industry that they conduct transactions with.
According to them however, they now are being forced by ERCA to pay VAT, based on the total price they charge tourists.
Experts said, based on the system, operators have to pay the VAT calculated from the total revenue the operator receives without taking into account hotel, transport and entrance fee costs.
The operators are not only opposing the VAT taxation system, but they also contend that requiring them to pay VAT based on their entire revenue is not legal.
“VAT payment based on commission violates the VAT regulation issued in 2002,” they emphatically stated. They also assert that hindering a major importer from acquiring hard currency will have dire consequences for future development.
“We are in one of the sectors that fetch hard currency for the country. Therefore, ERCA should take that into account,” they said. Fetsum Gezahegn, President of ETOA, said that tourism is one of the majors in the export sector and that the relevant stakeholders have acknowledged that fact. “If it is accepted without reservation, I believe most of the problems will be resolved,” he said.
Another issue related to ERCA, which was brought up was the confiscation of 30 vehicles (worth around 120 million birr) and imported under the duty free scheme, to encourage the sector. ERCA had accused tour operators of not using these vehicles for their intended purposes, which was for transportation and providing services for their customers. Tour operators opposed the measure taken by ERCA, claiming that the problem came about because of the way ERCA defines the terms ‘Tourist’ and ‘Tourism’, and said that the definition of tourism encompasses the whole operation which relates to it.
Tourism dialogue forum, Public Diplomacy Board
The other major point, which attracted considerable attention, was the formation of a sector dialogue forum comprising of the public and private sector that will meet frequently.
The private sector has also suggested that the tourism sector should be included on export consultations chaired by Prime Minister Hailemariam Desalegn. The other suggestion was for the formation of a Public Diplomacy Board that will contribute towards the boosting of tourist flow. “The tourism sector has to be granted incentives like the export-oriented manufacturing sector,” participants said.
During the presentation, it was also indicated that a comprehensive strategy for tourism has to be developed and implemented.