Shock As Two Vic Falls Hotels Are Hit With $5,3m Tax Bill

The Zimbabwe Council for Tourism - the industry representative body for the hospitality sector - has engaged Government to keep the Zimbabwe Revenue Authority at bay after the latter slapped a $5,3 million tax bill on two hotels in Victoria Falls.

The 112-year-old Victoria Falls Hotel, owned by Emerged Railway Properties — a joint venture between the National Railways of Zimbabwe and Zambia Railways — and jointly managed by African Sun and Meikles Africa, owes the bulk of the bill at US$4,1 million.

Victoria Falls Lodge, a privately-owned lodge in Zambezi National Park, is said to owe Zimra US$1,3 million in unpaid taxes. More hotels are under investigation and could have tax bills sent to them soon. The bulk of the unpaid taxes are said to have accrued over five years through to 2015.

Zimra says the hotels were not paying withholding tax on commissions and value added tax on food sold to foreigners as part of accommodation packages. Although the law that made the 15 percent VAT on food paid for by foreign visitors became operational at the beginning of the year, Zimra has backdated the obligations to 2010.

The hospitality sector says it had earlier agreed with the taxman to zero-rate the food. A report compiled by ZCT entitled “Zimra taxation: Effect on the tourism industry” accuses Zimra of unleashing “terror” at a time when the industry is facing high statutory, labour and utility costs.
“Since July 2016, the Zimra has unleashed terror on the tourism operators particularly those in Victoria Falls for what they deem as ‘unpaid taxes’ dating back from 2010 to 2015.

“Victoria Falls Safari Lodge was given a bill of US$1 260 000 (while) Victoria Falls Hotel was given a bill of US$4 100 000. Other industry players are currently under examination and they may also be slapped with huge bills,” said the ZCT report.

Apart from lobbying through the Tourism and Hospitality Industry Ministry, the council also wants to engage the Office of the President and Cabinet, which is superintending reforms to simplify doing business in Zimbabwe.

Haggle over laws

The major source of the clash between Zimra and ZCT stems from the difference in interpreting the law, especially on commissions that are supposed to be paid to the former.

While Zimra insists that the hospitality industry has to pay commission on the extra charge (net rate) levied on customers above the recommended or guiding price (rack rate) for products, experts say the difference usually accrues to tour operators.

In 2010 Zimra dragged tourism players to the Fiscal Appeals Court to force them to pay the commissions, but withdrew the case in January 2016. Tax authorities are said to have lost a similar case they had brought against the hunting sector in 2003.

ZCT is also annoyed that Zimra seems to be seeking to arbitrarily revise a position agreed six years ago that tax could not be charged on the food component integrated in accommodation packages for foreign tourists. The tourism sector says it “sought and got” written confirmation from Zimra that food so paid for would be zero-rated.

Zimra is said to have also confirmed this position with Ernst & Young — the tourism industry’s tax consultants — and communicated the position to stakeholders in 2010. But it now claims that the tourism industry “cannot rely on previous Zimra determinations”.

“In the above circumstances, Section 41 (liability for tax in respect of certain past supplies or importations) of the value added tax Act, stops Zimra from charging the VAT retrospectively. The current operations by Zimra are in contravention of the statutes,” the ZCT report adds.

There are concerns that should the issue go to the courts, it will drag for a long time. Zimbabwe is not the only country charging VAT on foreign accommodation as other countries such as Angola (10 percent), Malawi (16,5 percent), Mozambique (17 percent), Tanzania (20 percent) and Zambia (16 percent) do likewise.

South Africa, which exempts VAT on accommodation, has a tax reimbursable policy on all tourists on departure. Tourism Minister Dr Walter Mzembi told The Sunday Mail Business that his views on the contentious tax had not changed.

In an article published by ZimTravel — a Zimpapers magazine — Dr Muzembi said the sector had not sufficiently recovered to be a laden with an additional tax that would add to the cost of doing business.

“We have done a benchmark study of other countries in the region and the conclusion is that most do, in actual fact, charge VAT on foreign accommodation with variations observed on the quantum of the percentage charge.

“However, Zimbabwe is emerging from a different background of debilitating (European Union) economic sanctions applied over the last 15 years only repealed in November 2014 with the Zimbabwe Democracy and Recovery Act from the US still in force.

“Zimbabwe still needs to win the perception war altogether in its traditional source markets and hence, needs to, over much more than hospitality and products, to regain its overall competitiveness,” ZimTravel quoted Dr Mzembi saying.

The 1988 Sales Tax Act recognised tourism as an exporter and zero-rated accommodation services in Zimbabwe to encourage FDI and enhance arrivals. In 2003, the Finance Ministry exempted the sector again when VAT was introduced to grow tourist arrivals into the country and benefit the downstream industries.

Dr Mzembi said South Africa had an almost US$13 billion tourism economy because of favourable policies such as exempting VAT on accommodation. state media

Source: Shock As Two Vic Falls Hotels Are Hit With $5,3m Tax Bill (15/10/16)