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Vat Privilege Exclusion to Challenge Tourism Recovery

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Telling the tale of Ethiopia and how it is blessed with natural, historical, and cultural attractions has become almost cliched. It wouldn’t be newsworthy if someone mentioned how this magnificent nation of ours hasn’t been able to fully capitalize on these riches. However, for almost the ten years before 2019, Ethiopia’s tourism industry had had positive growth, if not to the full extent of its potential.

Ethiopia hosted more than 800 000 visitors in a single year in 2019. From its low point of slightly under 136 thousand in 2000, this number has increased significantly. Prior to 2019, the tourist industry also made for roughly 5% of the nation’s GDP. The sector has also significantly reduced the nation’s rising unemployment rate.

The COVID-19 pandemic, one of the biggest challenges to confront the planet as of the end of 2019, has put this big dream in jeopardy. It wouldn’t be an exaggeration to suggest that the tourism industry was hardest struck by the pandemic’s worst problems. The globe witnessed events it hasn’t seen in recent memory: hotels were forced to close, a number of others were converted into temporary health centers, and tour operators were forced to change their line of business.

Even when the time for these difficulties to be resolved finally arrived, the Ethiopian tourism industry suffered another historic setback. Since 2013, political unrest has shaken Ethiopia. The largest piece of this instability finally developed into a full-scale war in the northern region of the nation.

The economy of the nation as a whole and the tourism industry in particular has been hampered by this conflict. Direct attacks on tourist attractions were caused by the fighting, and the news of the conflict forced travelers to avoid Ethiopia, let alone take a chance on traveling here. The tourism industry is so affected by these ongoing instability that there once seems to have no chance of a recovery.

The crisis in the north has been resolved after a thoroughly decent effort, which was wonderful news for the Ethiopian economy. Sadly, such excellent news may not soon be well entertained by the tourism industry. The once-optimistic industry will now have to contend with a new tax policy that leaves it off the list of businesses that will consider receiving VAT advantages.

If authorized and implemented, the new regulation might stifle any potential advancements that the tourism industry would experience in the wake of COVID-19 and a number of conflicts. Several convincing reasons can be made for why this industry should be included on the list of those eligible for VAT exemptions and other special government assistance.

The fact that not all firms are included in the tax base is one of these arguments. It is possible for registered enterprises in the sector not to have all of their expenses documented with receipts. Consider a hotel that must provide its guests with those delectable meals. Even while there are significant costs associated with producing that one meal, not all of them are accounted for in a way that allows them to be subtracted from sales.

One may also take a tour company that takes tourists all across the nation. A tour of the nation’s diverse attractions exposes the operator to a range of fees, including transportation costs and payments to tourist destinations. The majority of these companies who provide the services are not included in the country’s tax brackets, so they don’t give the operator any receipts. Hence, none of these costs can be deducted from sales.

Particularly for tour companies, the costs don’t stop here. Even before a visitor lands in Ethiopia, fees for bringing them here are incurred. To draw travelers, a tour operator must participate in numerous promotional activities. The operator incurs significant costs, which are often paid in dollars, for everything from paying the agencies that coordinate these promotional efforts to the costs of attending these events abroad.

The fact of the situation is that these operators frequently have to deal with the difficulty of finding the requisite amount of dollars to cover these costs. Even worse, there is no defined process in place for the tax authorities to account for these expenses.

The valid arguments can just go on.

The tourism industry is one of the sectors that governments must target in any support program, according to actual experiences in other nations like Kenya. Instead of bombarding the sector with high taxes, other states profit from the business activities and tourists the sector can attract.

It is ironic that no support is given to a sector that can assist in resolving a problem that has existed for decades in a country that is struggling with a lack of foreign currency. This is actually the ideal time to help the industry recover from its most recent setbacks and reach its full potential for the nation- to the time to punch it back down.

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