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The Sh3.679 trillion Budget —which is the biggest that the country has ever had — has been met with mixed reactions in the midst of hard economic times coupled with high cost of living and pressure to repay the country’s maturing debts.

There is also the crippling drought, the worst in the past 40 years that has depressed harvests and pushed up food prices.

The high cost of living has also been aggravated by a weaker shilling, which is now exchanging at a record low of Sh140.45 against the dollar.

The Russia-Ukraine war, which has disrupted the supply chain of various commodities, such as fuel and food in the world has catalysed the situation even further.

In the midst of all that, however, the tourism sector seems to be the biggest winners when it comes to this year’s budget.

In the budget, tourism got a bigger slice after the treasury allocated Sh4.1 billion for the tourism fund and Sh2 billion for the sector promotion, which is an increase from the Sh3.2 billion allocated for the Tourism Fund and Sh1.8billion for tourism promotion in last year’s budget. 

More allocation to marketing

Other benefits, include an allocation of Sh400 million for maintenance of access roads and airstrips in parks, Sh319 million for drilling of boreholes in protected areas for provision of water for wildlife, Sh226 million for wildlife research facilities, which will assist in boosting the wildlife product as well as Sh727 million construction and expansion of airports and airstrips.

“While we appreciate the money that has been allocated to the sector, I think more could do bigger things. A lot of times, we haven’t understood the importance of tourism and it’s rippling effect to the economy.

A larger share of that amount should go to marketing as much as possible since the growth of tourism through marketing destinations to key markets will grow the industry,” says Hasnain Noorani Founder and Group MD of the Pride Group.

Identify key sources

Hasnain adds that part of the marketing needs to be benchmarking with neighbouring countries to understand who key tourism sources are for proper allocation of funds.

“We need to look at our history, airline connectivity and then know the key market regions where we need to spend the money on. We need to identify the 20 per cent of the markets that will generate us 80 per cent of the revenue and 80 per cent of the growth,” Hasnain says.

While appreciating the increase in budget when in the tourism docket, Africa Association of Management Company (Afamco) managing director Nicanor Sabula agrees that more money needs to be allocated towards destination marketing.

“The money allocated is a just drop in the ocean, we need to have money to refresh our product offerings as well,” he notes.

Another worry that the industry players are looking at is the high cost of living as a result of the added taxes. “With the price of fuel going up, thanks to the taxes, definitely everything will go up, including transport.

This adds to the fact that our tourism product is deemed to be expensive and this will definitely affect business,” continues Sabula.

To meet the governments ambitious budget, the National Treasury tabled the Finance Bill, 2023 (the Bill) before the National Assembly on May 4.

The Bill proposes a raft of tax changes, which are geared towards expanding the tax base and raising revenues. Experts in the industry believe that the Finance Act will have an impact on the disposable income, more so to the employed staff.

“Lower disposable income will have impact on the travel and tourism since there will be less traffic at various local sites.

This is likely to have short term impact since once the taxes are deployed within the economy there is multiplier effect of increasing the earnings and restore tourism and travel,” observes Dr Joseph Kithitu, Chairman Kenya Association of Travel Agents (KATA) and managing director Hemingways Travel.

 “Increased turnover tax may impact small tourism businesses. The proposed increase in turnover tax from one to three per cent, along with a lower entry point will subject more micro businesses in the tourism sector to taxation.

This could impose a financial burden on small tourism operators and potentially reduce their profitability,” notes Barry Clemens, CEO of Hospitality EQ, an advisory and consultancy specialising in hospitality and tourism sector in Africa.

Barry adds that an increased Value Added Tax (VAT) on petroleum products may raise travel costs.

“The decision to double VAT o 16 per cent on petroleum products will lead to higher transportation costs, including aviation fuel.

This could result in increased airfare prices and potentially discourage some tourists from visiting Kenya,” he continues.

When it comes to VAT registration for imported digital tax services, Barry believes that such an act may affect online travel platforms.

“With the requirement for non-resident firms providing imported digital services to register for VAT, online travel platforms and booking websites that operate from outside Kenya may face additional compliance costs.

This could potentially lead to changes in service offerings or increased prices for tourists using these platforms,” he says.

Online tourism promotion

When it comes to the taxes imposed on digital content creators, Barry believes that this will affect those who are directly linked to tourism, which will in turn affect the cost of digital marketing in the industry.

“The withholding tax of 15 per cent on payments made to digital content creators could impact the tourism industry by limiting the resources available for digital marketing campaigns and online promotion of tourist destinations in Kenya,” Barry explains.

Even as experts warn of the dangers of high taxation for the sector, some feel that the taxation will work for the industry.

“The taxation measures will bridge the gap in terms of foreign exchange fluctuation. We need to get more foreign exchange.

While tourism recovery is important, tackling inflation is key too and we cannot afford to borrow for that to happen,” says Dr Shem Wambugu Maingi, a lecturer and researcher in tourism management at the department of hospitality and tourism management at Kenyatta University.

Shem adds that the government needs to tax the biggest green house gases emitters and encourage energy efficiency and when it comes to the marketing budget, more should be done online to be efficient.

Well, I think the Government is focusing on efficiency in terms tourism marketing

We need to go to online marketing and reduce carbon footprint and the overall cost of promotion.

Social media and disruptive innovations, such as generative Artificial Inteligence will have a great impact on tourism. Transformation will only come through efficient budgets,” he continues.

When it comes to the effects of high taxation on domestic tourism, he says; “The effects on domestic market will be there. But the most important is we will shift to high value domestic markets and not high volume.” 

With the talks of sustainable tourism taking centre stage in tourism discussions, Shem believes that the budget should have included some of the things being mentioned, such as reduction of carbon emissions.

“We need to focus more on value addition and the promote social benefits when it comes to tourism. There should also be talks on energy efficiency in the budget and how we are going to reduce carbon emission in tourism.

There should be a tax waste, encouragement of environmental, social and governance integration and there should be incentives to encourage the industry on climate adaptation by offering tax reliefs,” he notes.

Shem believes that the budget should also encourage innovation and digitisation in tourism, which will in turn boost the industry and bring more income and create more jobs.

“We need to get more sustainable solutions and encourage sustainable tourism,” he says.