An Eye on West Africa

Trevor Ward, CEO of W Hospitality

The hospitality industry is very visible. We don’t hide our light under any bushels, we push ourselves to the forefront. We want to be seen by our customers. We put signs on the road, on top of our buildings, and glossy adverts in newspapers and magazines. We pop up on the first page of web searches, and send emails to potential customers. Then there’s Facebook, and Twitter, and whatever else there is on social media to tell the world we exist, and what we have to offer.

Now, if you get it right, that works a treat in getting customers through the door – what happens to them after that has been, and probably will be in the future, the subject of other articles. The objective, of course, is to get the customer to (willingly) part with as much money as possible while spending as little as reasonably possible in operating expenses to make that customer happy, so that they will come again, and your business makes a good profit. On which you pay tax.

So far so good.

But it is that all-important visibility that is often the reason why it can be so difficult to make a profit. Take Lagos, for example.

At the recently-held inaugural meeting of the Hotel Owners and Managers Association of Lagos (HOMAL) the delegates were told that a hotel is liable for well over 20 different licences, taxes and levies in order to stay open. And that doesn’t include all those that were necessary in order to build it in the first place.

We all have to pay our taxes so that government can function for the good of its citizens. Franklin D Roosevelt, a former US President, said that “Taxes are dues that we pay for the privileges of membership in an organised society”. Whether or not government actually does fulfil that remit is another matter.

When the burden of complying becomes too much for a business to bear, hotel owners rebel, which is where we’re heading in Lagos. It’s just too much unfair, and sometimes just plain ridiculous, tax.

Here are some examples.

You build your hotel, you comply with local planning regulations regarding the provision of adequate parking spaces, which you build, at your expense, on land which you have purchased, in a transaction on which you have paid stamp duty, and thereafter pay land use taxes. Then the government enacts a regulation which says you have to pay a levy of around $100 per year for each parking space on your own land.

Land use charges have recently been increased, for some people by a reported 500%!

Meeting space and event halls are big business, hosting many meetings, trainings, conferences, weddings and dinners. On ‘safety grounds’ the government says that you have to have a licence for each and every event held. And this licence needs to be applied for in advance, which can take some days to issue. Meanwhile, the hotel turns away business because of lack of a licence.

By the way, put up a banner on the wall of the hotel or event centre to publicise an event and pay a tax for advertising, per square metre of your banner.

There’s no public water provision in many areas of Lagos, so we dig boreholes (you need a licence) and install water purification plants (you need a licence) and extract water from the ground – and pay a levy per litre to government for water it has not been able to provide. It’s not metered, they make a wild guess about the amount.

For each passenger lift (elevator) you have in your hotel, you must provide government with a certificate of maintenance and safety. Fair enough. But the manufacturer’s certificate is deemed not to be adequate, only engineers specified by the government are considered capable of providing a certificate. Two certificates equals two payments.

The local government has the right to levy a merriment tax on private parties. Apparently the fact that Lagosians like to party is sufficient reason to tax them for, well, being happy, despite the VAT paid on the alcohol and food consumed, the music licence, the income tax from the workers, the list goes one. It’s taxes like this that engender resistance to tax, and demands for change.

And there’s more coming – legislation being discussed at a Federal level threatens to bring in a tourism development levy, another 1% of revenue for the government.

The hospitality industry creates jobs for some of the four to five million youths entering the job market each year. We do our bit to employ them, but the burden of taxation can become too much to bear. One challenge to doing anything about it is that the industry is both highly visible and highly diverse and is primarily made up of SMEs, who individually have too tiny a voice to be heard at government level.

That’s why HOMAL (which is for any business in the hospitality and catering industry) is so important, providing an organised forum to talk to and lobby government, and to educate them regarding the realities of operating in Lagos State. We all pay tax, and we all moan about it, but tax is another part of our social contract with an elected government.

Government’s side of the social contract is to provide social and economic benefits in return for that tax revenue.