Addis Ababa, Ethiopia — In a landmark decision that has ignited significant debate, the Ethiopian House of Representatives has passed a resolution to amend the existing VAT proclamation, imposing a 15% Value-Added Tax (VAT) on tour operators' total tour sales. This new tax, set to take effect in three years, will be collected from tourists using the services of tour operators, raising concerns and opposition from the Ethiopian Tour Operators Association (ETOA).

ETOA's Opposition

The Ethiopian Tour Operators Association (ETOA) has strongly opposed the VAT imposition since the initial proclamation over two decades ago. During the recent public hearing at the House of Representatives, ETOA presented professionally argued points, yet they were largely unaddressed by the legislative body. The association highlighted global, logistical, and practical challenges that could hinder effective implementation. Specifically, ETOA representatives pointed out the difficulty in obtaining legally acceptable, VAT-compliant receipts from various service providers, especially in regions outside the capital.

Challenges in Receipt Collection

ETOA has raised concerns about the complexity of acquiring receipts from major tourist attractions, including churches and historical sites, which are not legally mandated to register as VAT payers and therefore do not provide formal VAT receipts. Additionally, a significant portion of tourism expenses involves payments to local guides, community members, and villagers, who often do not issue receipts, further complicating tax collection efforts.

Impact on Competitiveness

The association warned that the new VAT could undermine Ethiopia's competitiveness as a tourist destination compared to neighbouring countries. The additional cost burden on tourists might drive them to choose more affordable destinations in the region, potentially reducing tourist inflows to Ethiopia.

Existing Safety Concerns

ETOA also emphasized the current challenges facing Ethiopia's tourism industry, including the lingering effects of the COVID-19 pandemic and recent conflicts in the northern part of the country. These events have led to travel advisories against non-essential travel to Ethiopia, resulting in significant business closures and job losses within the tourism sector. ETOA President Fitsum Gezahegne argued that even if peace and stability were restored immediately, the industry would require at least a decade to recover. The introduction of the VAT, in this context, was described as “another bullet on the head” of the struggling industry. The government, however, anticipates a faster recovery within three years.

Issue of Illegal Tour Operators

ETOA also highlighted the issue of illegal tour operators who may evade the new VAT requirements, potentially undercutting legitimate businesses and exacerbating competitive disparities.

Government's Perspective

Despite these concerns, the Ministry of Finance maintains that the VAT is a necessary measure to align the tourism sector with the broader national tax framework, contributing to national revenue and economic development. A ministry spokesperson stated, “We understand the concerns of the tour operators, but this tax is a necessary step towards ensuring that all sectors contribute fairly to our national development.”

Industry Response and Future Outlook

Considering the impending VAT, industry stakeholders are advocating for a collaborative approach to address these challenges and develop practical solutions. ETOA has urged the government to consider the unique dynamics of the tourism sector and to work together to devise a feasible implementation strategy. “We are not opposed to contributing to the national economy,” said ETOA President Fitsum Gezahegne, “but the current proposal does not consider the practical realities of our industry. We need a solution that is fair and practical for all parties involved, enhancing revenue and foreign currency income from tourism.”

Conclusion

The proposed 15% VAT on Ethiopian tour operators has sparked significant debate within the industry. While the government aims to increase national revenue, the practical challenges and potential impact on the sector's competitiveness underscore the need for a thoughtful and collaborative approach. As the implementation date approaches, continued dialogue between the government and industry stakeholders will be crucial in shaping a sustainable future for Ethiopia's tourism industry.

Stay tuned for further updates on this developing story and its implications for the future of tourism in Ethiopia.