Tourism Incentives Package

Tax down, tourists up

Lower taxation as an antidote to high operating costs is the central theme of the newly released tourism incentives package, details of which were announced to industry representatives at a series of meetings this week.

The new tourism incentives are being introduced following President Michel's National Day speech, in which he announced that the new package was being put together in a bid to revive the flagging tourism industry.

After lengthy discussions between travel trade representatives and members of government the new incentives package has now been unveiled and includes a range of measures designed to help travel trade operators reduce their costs.

Covering trades tax, GST, expatriate employment and social security contributions the new measures are an update to the 2003 Tourism Incentives Act, which was drafted to help alleviate the effects of the Macro Economic Reform Programme (MERP).

The amendments to the Act are due to come into force at the start of July, following its expected progress through the National Assembly.

According to Ministry of Finance sources the raft of tax cutting measures will likely lead to a fall in tax revenue of R22million over the coming six months, but Tourism Ministry Principal Secretary Eddie Bell was quick to point out that, as the cost reducing effects of the new measures come into effect, the volume of tourists is expected to rise significantly.

Though a rise in tourist figures sufficient to off set the fall in tax revenue per visitor is likely to take a while to materialise, the national economy is nonetheless expected to gain as a reduced tax burden should allow businesses to take on extra staff and plough profits back in to the economy.

But while saying that the new measures are designed to increase visitor numbers PS Bell insisted that Seychelles will remain a, "low volume, high yield," destination.

Addressing the issue of local employment PS Bell conceded that the new incentives make it easier for tourist establishments to hire expatriate workers, but said that, as the GOP (Gainful Occupation Permit) concessions are reduced over time the onus will be on local employment.

"If we don't employ our own people Seychelles will not see the full benefits," he said.

"Because of problems in recruitment and retention there is a need to employ foreign staff. This is also caused by the small labour pool in Seychelles," said the Principal Secretary.

"There are a number of issues we need to address to increase Seychellois employment in the tourism industry. The Ministry of Tourism and Transport has no core skills in labour or economic matters, so will work closely with the Ministry of Social Affairs and Employment and the Ministry of Finance."

Tourism Standards Board

Another measure heralded in the President's National Day speech was the establishment of a Tourism Standards Board (TSB), an idea flagged up in the 2001 Vision 21 tourism strategy document.

According to PS Bell, "The TSB will be there to advise the ministry. It will look at the registration, licensing and classification of tourism products, it will ensure that accommodation provided to tourists is of the required quality and standard and it will also monitor safety and security measures taken."

The TSB is to be staffed by travel trade insiders and Ministry of Tourism and Transport representatives but the influence of government is expected to be reduced over time.

"Eventually we want them (the travel trade) to regulate themselves. We don't want government to be the big boss regulating them, so the trade will be a very important component of the board," he said.

Acting as an industry standards watch dog the TSB will have the power to recommend to government that a tourism establishment lose its licence if it fails to meet minimum required standards.

Although no date has been set for the establishment of the Board PS Bell said he was confident that it would be functional within the next few months.

Below is a list of the proposed reforms to the Tourism Incentives Act, including, in italics, details of how some of the components have been amended:

•           HOTELS

–          0% Trades Tax and 0% GST on promotional material (was not previously included in the Act)

–          Guest Consumables 5% Trades Tax + GST, where GST is Calculated on Cost, Insurance and Freight + Concessionary Rate of Trades Tax + Retail Mark Up

–          The minimum NDROR (Net Daily Revenue per Occupied Room) has been revised to US$50 until December 2006 (minimum NDROR was previously $100)

–          GOP allocation has been increased in the mid to lower range hotels initially in order to allow the employment of expatriate labour to enhance the standard of the establishments.

–          Fuel concession for shuttle boats for hotels that use their boats solely for the purpose of ferrying goods, staff and clients to and from the island and rely on this as the principle means of access.

–          Introduction of a new “Islands” category to deal with the special requirements of the inner and outer islands as follows:

            •           Up to 60% expatriate work force (90% reduced GOP and 10% at  normal rate)

            •           This will also be applicable to peripheral activities such as diving, fishing, etc…

–          Exemption on withholding tax for marketing expenses (not previously covered by the Act)

–          Tourism Training Incentives for product enhancement specialists and foreign experts /consultants will be granted upon submission and approval of a detailed training programme to the Ministry of Tourism & Transport. The incentive comprises of exemption of GOP fees and Social Security Employer’s contribution (this measure is to be applied throughout the tourism industry)

–          Commercial vehicles: 25% applicable Trades Tax rate (previously a graduated allowance dependent upon a hotels revenue)

–          Employer’s Social Security Contributions capped at 20% (previously 25%)

–          GST base on hotel consumables, minor operating equipment, commercial vehicles, buses and chauffeur-driven cars will be calculated on 0% retail mark-up.

–          New business tax rates as follows:

                                                                                Tax Rate

            •           Net Profit SCR 0-47,999                       0%

            •           Net Profit SCR             48,000+                       15% (previously the first R24,000 profit was tax free, with the next R24,000 taxed at 25%, the next R48,000 at 30% and anything above that taxed at 40%)

•           TOUR OPERATORS

–          The category buses has been replaced with, “Vehicles for the transportation of passengers (buses, mini vans)," with a Trades Tax of 25 (down from 50%)

–          Trades Tax exemption on fuel for marine related activities/ excursions

–          Employer’s Social Security Contributions capped at 20% (previously 25%)

–          GST base on Operational Vehicles, Vehicles for transportation of passengers (buses, mini vans), Chauffeur Driven Cars and Capital Equipment will be calculated on 0% retail mark-up.

–          Exemption on withholding tax for marketing expenses

•           RESTAURANTS (OUTSIDE HOTEL PREMISES)

–          GST base on Capital Equipment, Minor Operating Equipment and Commercial Vehicle will be calculated on 0% retail mark-up.

–          Fuel concession for Shuttle boats for hotels that use their boats solely for the purpose of ferrying goods, staff and clients to and from the island and rely on this as the principle means of access.

–          Foreign Exchange Retention - whatever foreign exchange is banked, they will be able to retain 50% (previously not permitted to accept payment in foreign currency)

–          Employer’s Social Security Contributions capped at 20% (previously 25%)

•           DIVE CENTRE OPERATORS

–          New boats and engines will be granted 0% GST as well as 0% Trades Tax (previously GST was paid)

–          GST base on Standard Equipment (5%) and Commercial Vehicle (50%) will be calculated on 0% retail mark-up.

–          Employer’s Social Security Contributions capped at 20% (previously 25%)

–          Foreign Exchange Retention has been set at 50% (previously capped at 15%)

–          Trades Tax exemption on fuel for dive boat

•           HIRECRAFT

–          New boats and engines will be granted 0% GST as well as 0% Trades Tax (previously GST was paid)

–          GST base on Standard Equipment will be calculated on 0% retail mark-up.

–          Employer’s Social Security Contributions capped at 20% (previously 25%)

–          Foreign Exchange Retention has been set at 50% (previously 15%)

•           YACHTS / LIVE ABOARDS

–          GST base on Standard Equipment and Commercial Vehicle will be calculated on 0% retail mark-up.

–          Employer’s Social Security Contributions capped at 20% (previously 25%)

•           TOURIST GUIDES

–          GST base on Mini-bus will be calculated on 0% retail mark-up.

•           CAR HIRE OPERATORS

–          New rate for self-drive car of 50% of applicable Trades Tax (previously a 25% rebate was given regardless of the engine size)

–          GST base on car and chauffeur-driven car will be calculated on 0% retail mark-up.

–          Employer’s Social Security Contributions capped at 20% (previously 25%)

–          Forex retention lifted to 25% across the board (previously graduated to a maximum 25%)

-           R5 per day per car tax has been scrapped.

•           TAXI OPERATORS

–          New rate for car of 50% of applicable Trades Tax (previously a R50,000 rebate was given)

–          GST base on car will be calculated on 0% retail mark-up.

–          Foreign Exchange Retention - whatever Foreign Exchange is banked, they will be able to retain 50% (previously not permitted to accept payment in foreign currency)

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