Financial Act 2023 send shivers down the spine of tourism players

Tourists disembark from World Odyssen cruiser at the Port of Mombasa in January 2023. [Omondi Onyango, Standard]

Players in the tourism sector are banking on the Court of Appeal’s ruling on the contested Financial Act, 2023 to save their businesses from high taxes.

The sector had started picking since the Covid-19 pandemic but has suffered a major setback in the wake of the ongoing weekly opposition-led protests against the cost of living that has seen some international tourists cancel their bookings.

And if the court upholds the implementation of the Finance Act, the sector says several of the tax measures could roll back some of the gains made over the last two years.

According to statistics by the Kenya Tourism Board (KTB), there were 680,000 tourist arrivals into the country between January and May this year.

This was a 33.5 per cent growth compared to 510,000 arrivals in the same period last year.

Kenya's largest international airport, Jomo Kenyatta International Airport (JKIA) had 450,000 arrivals, constituting 68.4 per cent of total visitation, marking a 25 per cent growth.

Holidaying was the leading reason for most of the arrivals (260,000 visitors), contributing 38.7 per cent of the arrivals.

In terms of market share, the African continent was Kenya's leading source market with 300,000 visitors, accounting for 45 per cent of the arrivals, while from outside Africa, the USA led with 85,186 visitors.

Some of the sector players who spoke to Financial Standard said with additional taxes, they might be forced to pass on the additional costs to their customers.  

They said there will generally be a slow uptake of leisure services, further affecting revenues generated from the sector, which is among the highest contributors to the economy.

Mombasa hotelier Janet Chamia said there is a need for constructive dialogue across the political divide to ease tensions after the opposition announced street protests every Wednesday, Thursday and Friday to compel the government to address the high cost of living crisis by withdrawing the Finance Act, 2023.

"What we are seeing in terms of street demonstrations and police action on protestors is sending very negative signals and portrays Kenya as a violent nation. This could affect international arrivals and deny Kenya the much-needed revenue it requires to stabilise the economy," said Ms Chamia.

Carol Anam, the proprietor of Afrika Kijiji Village, a traditional themed establishment in Mombasa, said domestic tourism had shown great potential, and this is where the government ought to invest in the wake of falling international arrivals.

Kenya Association of Hotelkeepers and Caterers (KAHC) Coast Branch Executive Officer Dr Sam Ikwaye said the new taxes do not bond well for the sector since many Kenyans can barely afford basic needs and will, therefore, not prioritise holidays.

"As we eye full tourism recovery, tourism promotion and marketing need more funding. Market promotion and presence are necessary for the sustainability of any brand. The Magical Kenya brand will struggle if there is no support from the Kenya Tourism Board (KTB) to help it roll out its programmes,'' Mr Ikwaye said.

Kenya Association of Hotelkeepers and Caterers (KAHC) Coast Branch Executive Officer Dr Sam Ikwaye (left). [Omondi Onyango, Standard]

In the budget estimates for 2023-2024, the Tourism Ministry was allocated Sh6 billion.

Mr Ikwaye said the funding is inadequate, adding that training and manpower development are unlikely to get any allocation from the overall budget because of the many competing needs.

''With the failure to check and audit standards for the longest time, the sector will suffer if the allocated amounts are not sufficient for agencies to fulfil their mandates," he said.

Ikwaye added that the scrapping of the Tourism Finance Corporation (TFC), which was instrumental in financing investments in the sector needs to be revived, adding that funding from TFC was important in the past as they supported investors to improve their businesses.

Other agencies like the Tourism Research Institute need lots of funding, but given the limited allocation, it is unlikely that there shall be any meaningful research that is key in the dynamic sector.

The ambitious Charter Incentive Programme (CIP), which aimed at encouraging more charter flight rotations from Kenyan source markets, served as an excellent venture, which ensured a steady flow of international tourists into destination Kenya.

For Mr Titus Kangangi, a tourism consultant and Malindi hotelier, the Finance Act will have a serious impact on tourism but for a short period.

''The country is known to be resilient, and things will change back to normal,'' he predicted.

Kangangi, who is the proprietor of Kangs Hotel, a boutique hotel in the tourist town of Malindi, said the Act, in its entirety, would hurt the bottom-line approach because the tourism sector is not like agriculture with minimal inputs like fertiliser.

''The rise in the cost of petrol and electricity tariffs will make our production costs high and once passed to end consumers, would make our destination more expensive and uncompetitive. There are other option destinations which tourists will choose to go for vacation,'' Kangangi said.

A tour operator majorly serving the Kenyan Coast, Tsavo, Maasai Mara, Amboseli, and neighbouring Tanzania who did not wish to be identified, said he will be shifting his business to Tanzania if the court does not reject the new law.

'' I took a huge loan, which I used to acquire a fleet of safari vehicles and employed ten new drivers/guides. I am still servicing the loan, but with the new additional taxes, this might prove a big burden to surmount,'' he said.

He added that he has opened a small franchise in neighbouring Tanzania and was in the process of setting up another outlet in the isle of Zanzibar just in case he is unable to succeed in Kenya.

Tourism, Wildlife and Heritage Cabinet Secretary Peninah Malonza said rebuilding tourism requires a multifaceted approach beyond refurbishing the hospitality facilities.

'' We must renew our commitments to sustainability, innovation, and the well-being of our visitors. Together let us collaborate closely and define a roadmap to a brighter future where Kenya's tourism industry emerges stronger and more resilient,'' Malonza said.

The CS in a recent address at the just concluded 19th edition of the Kenya Association of Hotelkeepers and Caterers (KAHC) in Mombasa, said that there is a need to invest in hotel refurbishment to maintain and reflect on our unmatched national brand, upgrade facilities, expand connectivity as well as provide affordable transport and accommodation and introduce new and exciting products that enhance the overall visitors' experience and help position Kenya as a premier tourism destination of choice.