ABSTRACT

With the post-COVID 19 era in view, the tourism sector is bound to be one of the most affected, as several businesses involved in this sector already anticipate a boost in activities. Tourism taxation is sure to be implemented as it is one of the possible instruments for the regulation of tourism and preventing or mitigating the negative impacts of tourism. However, the tourism sector in Cameroon is made up of small businesses and the taxation of these businesses in Cameroon is seen as a major hindrance to its performance. The thesis aims to evaluate the current situation of tourism taxation in Cameroon, especially the accommodation Tax and Value Added Tax in the case of Limbe (southwest province), and investigate if, and how, the taxation in the accommodation sector has influenced its financial and operational performance. Questionnaires were distributed to 32 managerial staff of 16 accommodation businesses in Limbe. The study concluded that the value-added tax has a strong negative impact on the performance of these businesses, as a 1% increase in VAT will lead to a 21.7% decrease in performance. Also, accommodation tax has a strong negative impact on performance as a 1% increase in accommodation tax will lead to a 27% decrease in performance. The study, therefore, concluded that there is a need for accommodation business operators to know the taxes associated with their business. More so, there is a need for a friendlier tax system and policy. The study also made recommendations on the SWOT analysis.

Keywords: Accommodation tax, Value Added Tax, Accommodation sector, Performance.

CHAPTER 1

INTRODUCTION

1.0 CHAPTER INTRODUCTION

Tourism taxation is considered a potential threat by tourism operators. This chapter provides a concise description of the problem under research and at the same time delimitating factors such as time as a study area. The objectives, questions, and significance of the research are also outlined in this chapter.

1.1 BACKGROUND OF THE STUDY

With ever-increasing demands on governments and ever-dwindling resources, governments all over the world attempt to generate as much revenue as possible to fund their activities. Tourism, being one of the world’s fastest-growing industries and the world’s 3rd largest industry after chemicals and fuels representing 7% of the world’s total exports seems, of course, to be an avenue for raising such revenue (UNWTO, 2019). Policymakers may see tourism taxation as a useful instrument for raising government revenue and addressing specific difficulties relating to tourism, such as negative externalities.  On the other hand, representatives from the tourism industry generally view tourism taxes by them as a potential threat. This is largely based on the assumption that tourism taxes can drive potential tourists away from a region, as they increase prices, thereby influencing the industry’s price competition thus, negatively impacting the economy (Ihalanayake, 2009).

Nothing is certain but death and taxes. This statement was made by Benjamin Franklin and seems to hold true today. Taxes are levied on several industries, not excluding the tourism sector. Tourism is subject to a range of specific taxes, fees, and charges, and tourism taxes provide governments with one avenue of funding to help support public investment in tourism.

As pointed out by Chude and Chude (2015), taxation has a significant impact on corporate profitability and that taxation reduces business earnings for re-investment. Also, Ezugwu and Akubo (2014) argue that taxes may affect important aspects of businesses like productivity and competitiveness as it plays a role in business failure. Tripathi et al (2011) go a step further to give a reason for this failure as it pointed out that with indirect taxes such as VAT (Value Added Tax) business operators will simply pass the tax burden to the consumer by increasing the price of good or service offered. This will lead to a reduction in sales since the goods or services will now be expensive for the customers.

Despite the above-mentioned concerns relating to tourism taxation worldwide, there are still valid reasons why tourism is taxed. Apart from the wider purpose of contributing to general tax revenue and supporting public investment in tourism development. The reason for specific tourism-related taxation varies between countries and the type of levy imposed. Beigi et al. (2013) mentioned that an efficient tax system ensures businesses against the risk of the unknown since the government may direct the fund collected from taxes to grant incentives or fund implementation of policies that would stabilize the economy and prevent disasters that would have taken place.

• Funding for environmental protection and infrastructural development: Tourists’ taxes are levied to better manage the damaging spill over effects of tourist activities in easily affected areas and guarantee that commercial activities are in line with government ambitions. For example, in Iceland, accommodation tax is one of very few where revenue is pledged to promote the development, maintenance, and protection of nature-based tourist attractions under public ownership.
• Reimbursement of costs incurred in the processing of passengers at national borders. These costs include customs, immigration, security, quarantine, and the issuing of short-term visas. For example, in South Africa, a passenger service charge is levied on each passenger to recover both operational and capital expenditure costs related to various airport services and facilities provided to passengers.
• Ensuring the safety and security of those traveling to and from and within the national borders of countries. Tourism taxation is a means of tourist protection, as revenue raised could be used to provide their security. For example, in New Zealand, the government agency-Aviation levies a security service-levy on individual passenger charges. Passenger security charges are levied on a per-departing passenger on both domestic and international flights from New Zealand airports. This provides funding for the Aviation Security Service which is the government’s organisation responsible for maintaining the security of the aviation sector.
• Encouraging visitor spending and job creation. Tourism taxation increases tourist spending on the visiting country thereby increasing demand and employment. For example, in Israel, the return of VAT on all goods purchased by tourists is in place to encourage increased consumption, while in Ireland, the reduced rate of VAT on hotels and restaurants aims to boost tourism demand and stimulate employment in the sector.
• Funding domestic and international marketing and promotion activities. Tourism taxation serves as a means for the state to raise revenue to promote the tourism sector. For example, in Mexico, 80% of revenue from the non-immigrant tax on those entering the country for tourist purposes is directed to the Mexico Tourism Board to support domestic and international promotion activities.
• Encouraging investment in tourism infrastructure. Tourism taxation could be implemented by the government to foster private investment. For example, in Australia, a concessional tax treatment for hotels has been in place for nearly 30 years to encourage greater investment in the hotel sector. Under this initiative, investors in hotels and short-term accommodation developments receive concessional depreciation rates compared to investors in other new buildings for other purposes.

As seen above, several countries outside of Africa seem aware of the impact of taxation on tourism and, as such, have taken measures to maximize the positive impacts of taxation by reinvesting the part of the funds generated from the taxes levied into the tourism industry. Based on analysis of various countries and business environments, numerous African countries present tremendous promise to become or remain vibrant hosts for tourists, investors, and entrepreneurs, which can drive employment for low-skilled workers and economic inclusion for women and youth (Signé, L., & Johnson, C. 2018).

Several countries in Africa currently levy some form of tourist tax including prominent tourist destinations like Kenya, Botswana, Egypt, Uganda, and Tanzania. Kenya has an additional 2% Value added tax dedicated to the tourism fund on all tourist businesses (Xinhua,2020). Botswana also has a tourist tax of $30 levied on all tourists entering the country in an effort to raise money to support conservation in the safari hotspot (Morris, 2017). Egypt too has a $15 levied on all incoming tourists (Travelmail, 2017). Uganda as well has an accommodation tax of up to $2 per night to help raise revue for the government (IRAS,2017). Tanzania follows the trend with an 18% tax on all tourism operators (Pamoja Safaris, 2018).