ECONOMIC INSIGHT How heavy taxation kills hospitality industry in Abia
The rate of growth in the hospitality industry in Abia State is becoming alarming, thereby increasing the level of competition.
Most hotels in Abia strive to meet up with standards in terms of good accommodation, good services and good customer with the aim of increasing relations.
The hospitality industry is everywhere in the state, which entails hotels, bars, restaurants, theme parks and a host of others.
In recent times, before the last recession that hit the country, Abia’s economy witnessed tremendous ‘growth’ in the hospitality industry leading to the emergence of hotels, fast food restaurants, night clubs and cruise lines.
However, the hospitality industry in Abia State is faced with a myriad of challenges, ranging from multiple taxation, outrageous electricity bills, state government’s refusal to interface with stakeholders within the industry, high running cost, poor customer service, little or no standardisation in operations, inconsistent regulatory environment and skilled labour shortage caused by a few entrepreneurs with little knowledge of the workings of the industry who hijack the process to perpetuate plans for their own personal aggrandisement.
Daily Trust in a chat with some key stakeholders in the hospitality industry in the state gathered that owners of hotels paid through their nose to remain in business in an unfriendly business environment.
Goodswill Ogbonna, the Manager of Pet-mobile Hotel in Umuahia, said he had been in the hospitality industry for over a decade, and that the challenges he faced were biting harder following the recent recession. He dismissed the claim by some individuals in the media that Nigeria was out of recession.
He said about four to five months ago it was very difficult and that people found it difficult to patronise any hotel because Abians were looking for how to take care of their families in terms of school fees, accommodation and feeding. He said nobody had time for luxury: coming to a hotel to drink and relax, except those on transit.
“Before recession, we had 70 to 80 per cent occupancy but now patronage has dropped to 30 per cent and sometimes we sort for money to buy diesel. As much Even if you don’t have guests the generator must be on and you can’t afford to put it off. You have to sorurce for N20,000 daily to buy fuel.
In terms of power, Mr. Ogbonna said he spent close to N200,000 monthly on the purchase of fuel, salaries and other sundry charges to keep business moving.
He said most hotel operators were forced to bring down the prices of rooms, as a room of N5,000 was sometimes given for N3,000 in order to get money for fuel.
On taxation, Ogbonna said the level of taxation in Abia State was biting hard on operators of the hospitality industry compared to the volume of business done.
According to him, “We pay tax to the state and local governments and sometimes we pay to the Federal Government agents. Hoteliers pay property rate to the local government, state government and also pay the same property tax to the Federal Inland Revenue Service (FIRS). In environment for instance, we pay the same tax to the Ministry of Environment and also pay to the Abia State Environmental Protection Agency.”
He maintained that though it was good to pay tax, but the multiplicity of the taxation in Abia was now unbearable.
Therefore, he appealed for harmonisation of taxation.
Speaking on behalf of Umuahia Hotels Union, Chairman of the union, Prince Charles Ezeala, who is also the Managing Director of Shelton Hotels Limited, narrated how hotel business started in the early 90’s in Umuahia, how Abians were encouraged to invest in tourism so that the state could effectively host national activities as there was no industry in Umuahia that attracted tourists.
Ezeala said his union was inaugurated to check the activities of members, unfriendly business environment in the state and most importantly how taxes were being collected in the state .
“We had Umuahia Hotels Union before and now efforts have been concluded to join the national body of the union.
Hotel recession business
According to the hotel unions chairman, the union was facing hard time and needed some bailout.
“I am not aware that the hospitality industry in Abia State is out of recession. We are not out of recession and the situation is worst with hoteliers now on daily basis. Abians, and by extension Nigerians, are looking for money to eat and pay bills like school fees and the rest. They hardly talk about going to hotels for relaxation. We are finding it difficult to pay salaries, the hospitality industry is worst hit when there is recession.
On the running cost during
“The major expenses we make is on power, either through generating sets or the electricity gotten from public supplies,” one of the hoteliers said. H e continued, “A normal hotel in Umuahia, the least my members paid was about N100,000, as electricity bill per month.”
He said if a hotel ran a 100 KVA generator, it would consume 200 litres of fuel for 24 hours and 100 litres for a night.
He said there were bigger hotels with much more bigger generating sets.
“Multiply what we spend a day by 30, you will have an idea of what we spend in a month and guests always demand maximum satisfaction for their money, especially in the night, even when you don’t have many guest.
“The painful part of the business is that a room that goes for N5,000 which most times is the cheapest, we are forced to give it out at N3,000, because we won’t send the guest away, we have no choice, the rooms will be empty and you have to put on generator and we need money to pay bills and buy diesel. The cost of running the business is going high, maintenance is high, building materials have gone high but the hospitality industry is coming down. There is no hotel that increase its rate now, even when you are buying you consumables like soap, detergents, among other things, their prices are high but room rate is going down because of the peculiar nature of the business, he said.
On taxation
“In terms of taxation, we have taken it up with government agencies and we have written several letters to Governor Okezie Ikpeazu but up till now there is no response. However, we are hoping that one day the governor will see reason to discuss with us. The taxes are to much; we pay the same tax to the local government, they changed the nomenclature and asked us to pay the same thing to the state government. For example, the VAT which is a consumption tax which we pay five per cent to the federal inland revenue. The state came up with their own and called it consumption tax and they gave every hotel in Umuahia N1.8m to pay yearly, the local government came out with their own and called it hotel licence which is 10 per cent of every consumption.
“Aside from the ones I have mentioned,, we also pay business premises tax, hotel license to the state, local government asked us for operational permit, when you look at the health aspect of the hospitality industry in the state, the state has a sanitation outfit called ASEPA. In ASEPA, there are five distinctive levies they force us to pay: sanitation tax, noise pollution tax, environmental impact assessment tax, sanitation support fee, and the fifth one all in one department.
“We also have in Abia State environmental mobile court where they come around, find fault and give you charges and the least you pay to the court is N100,000 if you are convicted.
“Also, we have food and safety committee established by the Abia State Government, they go round and inspect, they end up with one payment or the other.
“The Ministry of Environment also has an inspection team that comes around for inspection, issues one permit or the other and also collects money from us. The local government health and environmental department comes to ask for the same environment fees and these local and state governments will come with one certificate or the other,” Ezeala said.
On infrastructure
“We have infrastructural levy which is N200,000 and if you don’t pay you will be charged to the revenue court, and the judge will tell you “I am here for conviction.” So once you are arraigned you will be guilty as charged. Once you appear in the revenue court the magistrate will ask you where is your receipt, it’s either you pay inside the court or you will be sent to prison.
“In all, hoteliers in Abia State pay more than 30 revenue headings to the local and state governments and all of them are big money,” Ezeala concluded.
The union adviced the state government to intervene in power generation to increase the quantum of electricity that came to the state. It said the governor should look into over taxation currently existing in the state.