NAIROBI, Kenya, May 9 – As the country inches closer towards the 2011/2012 Budget, some members of the hospitality industry have joined in the fray asking for an amendment to the current tax regime in the sector.
The Pubs Entertainment and Restaurants Association of Kenya (PERAK) has come up with a paper detailing several proposals which if undertaken can lower taxes, stimulate the growth of the industry and result in increased revenues for the government.
PERAK Chief Executive Officer Sam Ikwaye said the paper recommends the reduction of the consolidated Value Added Tax (VAT) for the tourism and hospitality from 18 percent to 10 percent as one of the measures to achieve these goals.
"A review of this regime would bring down the price of goods and services and spur demand in the tourism and hospitality sector as well as increase job opportunities for our youth," he said.
Mr Ikwaye reckoned that the current system where a 16 percent VAT on all sales of alcohol and or accommodation and a two percent Catering Levy are charged in the hospitality industry amounts to double taxation and encourages non-compliance.
A survey conducted in conjunction with RSM Ashvir Consulting found out that only 45 percent of the bars and restaurants in Nairobi\’s Central Business District (CBD) are registered for Catering Levy while 61 percent are registered for VAT and have Electronic Tax Registers (ETR).
Besides stemming from high taxation, non-compliance is also encouraged by the existing legislation which requires pubs and restaurants with turnover exceeding Sh3 million per annum to pay this rate.
"This translates to a daily turnover of Sh8,219 which is approximately 3.5 crates of beer. Which entity operating in the CBD would not be able to sell 3.5 crates of beer? The current impunity enjoyed by the non compliant entities has created an un-level playing field for registered persons," Mr Ikwaye complained.
This (registration) threshold, he added, should be removed to ensure that all establishments in the sector are registered irrespective of their turnover and which would eliminate the need for such pubs to manipulate sales figures through keeping two sets of books.
Mr Ikwaye added that these levies are way above the rates that are charged in other world tourism destinations such as South Africa and Mauritius and make Kenya less competitive.
In Mauritius, the VAT rate is 15 percent, Seychelles is 10 percent while that of South Africa and Singapore is charged at 10 percent and seven percent respectively.
"We all know that the government is running on a budget deficit but this gap can be narrowed by administrating some of these measures. For instance, extending Catering Levy would increase government revenues by Sh235 million on alcohol," the CEO explained.
The adoption of these suggestions, the association emphasised would have the net effect of transforming Kenya into a high class tourism destination that contributes much more to the country\’s GDP.
The tourism sector raked in Sh73.68 billion in 2010, which represented a 17.9 percent increase in earnings for 2009 and which was largely driven by increased marketing and having more high-end visitors.
This is one of the sectors that have been identified among the six drivers that should assist the country to achieve its Vision 2030 but has largely been taken for granted in terms of budgetary allocation.
But for it to effectively play this role, industry players say the government must invest more in marketing the sector and the products that the country has to offer.