How Tourism Billions End Up Overseas

With the current tourism resurgence, about 200,000 visitors are expected every year and the potential loss of foreign exchange is estimated at Sh2 billion.

The Greek historian Thucydides pointed out - while analysing the causes behind declining military powers - that most leaders do not bother to investigate the source of their good fortune when things are going well

Rather, it is only when a disaster occurs that they begin to look seriously into the matter.

Kenya's tourism is enjoying a remarkable resurgence. This makes it unlikely that its weaknesses will be examined and remedies suggested.

Leakage of revenue is highlighted in the new tourism policy and its elimination is taken as a central issue. But is anything being done about it?

Leakages refer to profits made in Kenya by overseas tour operators, which are then repatriated offshore.

The kind of tourism referred to here is in-bound - where overseas tourists come to spend their money in Kenya. It is an export business that earns both foreign exchange and taxable profits.

Any set of rules and regulations for the sector will, therefore, encourage the development and sale of Kenyan products by Kenyans and enable the sector to be competitive.

Bringing foreign tourists to Kenya must result in maximum benefit to the economy through retained foreign exchange and taxes. Creating a free and fair competitive business environment is a job for specialists in the Finance and Trade ministries. Measuring the results is a job for specialists in the Revenue Department and the Treasury.

Measuring Kenya's national annual manufacturing production requires adding total sales of manufactured items to the current production and stock. Service industries may be harder to pin down. Tourism products consist of lazy days on the beach or travelling in a safari vehicle watching the wildlife.

Counting hotel and lodge receipts as well as tour operator sales would result in duplication and overstated tourism production.

A government formula would provide a more accurate picture and would have to be based on hotel and lodge bed night receipts plus travel by various methods while in Kenya. Without over-simplifying it, the rest would be tour operator commissions.

Confusion exists over receipts and what money legitimately stays off-shore and what remains in Kenya. To go beyond the confusion, one has to consider the example of airlines.

When Kenya Airways sells a ticket in Nairobi for travel to London, the sale stays in Kenya. But what of a Kenya Airways ticket sold in London for travel to Nairobi? The money is sent to Kenya. So, all of any airline's global sales go to one account in the home country where global sales and expenses are consolidated into one account for tax purposes.

Ticketing agents' commissions, overseas staff costs, fuel and other services are paid in whatever country the service is provided and local taxes on the expenses are also paid there.

But when British Airways, to take another example, sells a ticket in Nairobi for travel to London, that money is sent to England. Airlines are special cases. It is only when they franchise their operations, which is quite rare, that domicile moves elsewhere, together with tax liabilities.

A principle with airlines is that they pay income tax on their sales only in their home country. Provisions in double taxation treaties and bilateral air service agreements uphold such principle.

Tour Operators are in a different category. And it is to tour operators that we must look on the question of leakages. There is a fundamental difference between Nairobi-based safari tourism and the Coast beach tourism.

Most international visitors to Nairobi arrive by scheduled airlines. They have the freedom to choose their arrival and departure dates and the length of their visit.

They may stay for one day, a month or longer. Some are business people who, in between busy meetings, may decide to visit the Nairobi National Park for a few hours, before flying out.

Other tourists may visit friends or relatives and have free accommodation for long. They then visit any attractions they would wish to in a leisurely fashion. Both, however, would find a full range of information available because tourism in Nairobi is open and competitive.

Many tourists arriving in Nairobi would be part of an organised tour. Nairobi is the aviation hub for Kenya and it is where tour operators have their head offices. It is the starting point of wildlife safaris, especially as most of the better parks are far from the Coast. Safari visitors will spend from five to 15 days in Kenyan game parks and reserves.

These tours are too expensive to be left to chance and must be arranged and paid for in advance. This is the tour operator's speciality, and all tour arrangements such as transport, game park fees, lodge and hotel accommodation are pre-paid.

The only time such tourists would need to use their money is for tips and drinks. Laundry is sometimes paid for in advance. These safaris are expensive, but the tourists' discretionary spend is often low.

When such a tour is organised and sold by an overseas out-bound tour operator, the organisation's commission is built into the sale price, which is then retained in the home country and the balance, being costs in Kenya, is sent to the respective Kenyan service providers.

When the tour is arranged by a Kenyan-based in-bound tour operator, all monies including the tour operator's commission is paid in Kenya. All of which is as it should be. Either way, the discretionary spend of the tourist is money spent and retained in Kenya.

Source: The Nation (Nairobi)