Tough times ahead for tourism in face of high VAT and lack of FDI incentives (Ghana)


By Staff | Business & Financial Times, Ghana September 11, 2017

The economy’s fourth largest foreign exchange earner, tourism, is in for a torrid time if measures are not put in place to arrest consistent decline in its fortunes, a new report from GN Research has pointed out.

Some of the whirlwinds facing the sector, according to the research firm, include lack of tax incentives, numerous and overlapping revenue collecting agencies, institutional and regulatory lapses due to their bureaucratic nature, and lack of infrastructural development.

“GN Research analysts therefore impress on government to institute financial incentives such as tax incentives, depreciation subsidies, subsidized tariffs and concessions under specific projects or geographic locations to ensure a satisfactory return on investments. This should target long-term opportunities identified by the GIPC,” the report said.

Aside the financial incentives, the report urged government to enhance the security of investments in the sector by ensuring stable economic and political environment since the sector is very sensitive to them.

“Government should increase its investments into the sector to complement the private sector’s participation in the sector and provide the necessary infrastructure like roads and power to facilitate investment into the sector,” it noted.

The report, which sourced data from the Ghana Investment Promotion Centre (GIPC), noted that tourism recorded no new project in the first half of 2017, its worst Foreign Direct Investment (FDI) projects performance in 10 years, despite the GIPC recording 95 new FDI projects in the period.

“These new projects targeted other sectors of the economy including services, manufacturing, general trading and liaison, building/construction, export trade and agriculture leaving the tourism sector with no new investment,” the report said.

The poor performance of the sector, according to GN Research, is due to the lack of incentives for enterprises in the sector, mainly due to the repeal of Promotion of Tourism Instrument, 2005 (LI 1817), which empowered the GIPC to grant incentives in the form of tax exemptions to businesses in the industry in 2011.

“The presence of the LI led to increased private sector investment in the sector through construction, refurbishment and upgrading of tourism infrastructures. However, the repeal has left the sector less incentivized.

Our analysis of the available tax incentives for the tourism sector shows that, there are only two major incentives; corporate tax of 22percent instead of the standard 25percent and the importation of items listed in chapter 98 part B and C of the Harmonized System and Custom Tariff Schedule.

Also, comparing the sector with other countries –Romania, Poland, Belgium, Kenya, Morocco and Senegal– with similar levels of development of tourism, using contribution of travel and tourism to GDP), shows that Ghana charges the highest VAT, 17.5 percent, on businesses operating in the sector,” the report noted.

The attainment of the goals of the National Tourism Development Plan (NTDP)-(2013-2027) requires an annual investment of about US$ 1.3 billion which is likely to be jeopardize by the declining Foreign Direct Investment (FDI) inflows into the sector.

FDI constitute about 49 percent of investments into the sector but its share in the sector has been declining. For example, the sector’s share of FDI in value terms fell from 1.59 percent in 2013 to 0.06 percent in 2014, while its total contribution fell from 7.6 percent to 6.7 percent.

GN Research added that another reason for the inability of the sector to attract FDI is institutional and regulatory lapses due to their bureaucratic nature.

Already, the 2017 World Bank Doing Business report shows that, Ghana’s performance on almost all the institutional and regulatory components is declining.

Factors such as ease of starting business, dealing with construction permits, registering property, protecting minority investors and enforcing contracts have fallen. Ease of starting business recorded the highest fall from 103 to 110 out of 190 countries, followed by ease of dealing with construction permits from 112 to 117.

Tourist arrival to Ghana, according to the Ghana Tourism Authority (GTA) increased from 172,000 in 1991 to 746,500 in 2010 and 1,093,000 in 2014. Also, the sector on average have accounted for 5.5percent of total employment and contributed an average of 8percent to GDP in the past 10 years.

Statistics from the World Travel & Tourism Council (WTTC) shows that, an average of US$342million has been invested yearly in the sector over the same period while generating an average of US$2.2billion in total receipts.

It is estimated that about 1.2 million tourists arrived in Ghana in 2016 and projected to reach 1.4 million and 4.3 million in 2017 and 2027 respectively according to the National Tourism Development Plan (NTPD) (2013-2027). Tourism receipts are also projected to reach US$4.7 billion and US$8.4 billion in 2022 and 2027 with its direct contribution to GDP at 5.2 percent and 5.7percent respectively.

The WTTC has also projected the sector to record an average growth of 5.1 percent for the next 10 years (2016-2026) while increasing the sector’s total employment from the 730,000 projection for 2016 to 826,000 in 2022 and 1.4 million in 2027.

Despite all these promising data, the GN Research report is of the view that if the challenges enumerated are not tackled, projections might not be met and Ghanaians will be at the losing end.

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