Zimbabwe’s removal of value-added tax (VAT) zero rating on tourism services supplied to foreign visitors has put pressure on operators and overseas buyers with businesses forced to absorb or pass on additional costs on bookings often contracted months or even years in advance.
Effective January 1, tourism services previously zero-rated for foreign visitors, including activities and transfers, became subject to Zimbabwe’s standard VAT rate, which simultaneously increased from 15% to 15.5%. Accommodation, which was already standard-rated, was therefore subject only to the 0.5 percentage-point rate increase.
Nine months on, Tourism Update spoke to tourism businesses in Zimbabwe to assess the impact on bookings and demand. Operators say the changes initially caused friction with overseas partners and affected competitiveness. Now, they report, the market has adjusted and demand has remained strong.
Initial shock
Jillian Blackbeard, CEO of Africa Eden, said businesses expected previously exempt services to become taxable at some point but the sudden implementation meant they had to factor the additional cost into existing bookings.
Bookings closer to travel were generally honoured at their original price while VAT was added to bookings further out. However, Blackbeard said, European partners faced an additional constraint with consumer protection requirements governing when and how price increases could be passed on to customers.
“European consumer law requires notice of a price increase so they had to absorb the VAT for at least the first month and, in some cases, longer to protect supplier relationships. Given the volume of bookings, absorbing the cost over the long term would have seriously affected service so passing it on became necessary.”
The change caused some strain between overseas buyers and suppliers, particularly where prices had already been agreed. Blackbeard said absorbing the VAT on existing bookings also affected what was otherwise a strong season.
“The increase did make Zimbabwe a more expensive destination and there was a brief period of adjustment. Since then, confidence and demand have picked up again.”
Africa Albida Tourism Sales and Marketing Director Anald Musonza said the VAT changes initially had a substantial impact on the business, particularly because activities became more expensive.
“The increase in the price of activities was the biggest shock. Everybody in the industry was really hoping the decision would be revised to increase tourist arrivals and ensure our destination is competitive. But we also understand the need for the government, through the fiscus, to generate revenue from taxes for development.”
Demand holds
Musonza said the previous zero-rating of tourism activities and transfers helped Zimbabwe remain price-competitive. Its removal had the opposite effect.
“In hindsight, the increase made our businesses less competitive from a price perspective compared to our competitors in the region.”
Musonza said the higher costs did not have a significant impact on enquiries and bookings.
“We’ve had a very, very busy season with very high occupancy. It’s really been one of those situations where I think the market got a shock but it seems to have adjusted.”
