The Fiji Hotel and Tourism Association says businesses remain unclear about how the new 5 percent Tourism Services Tax will work, with concerns that taxing turnover rather than profit could significantly increase the tax burden on tourism operators, particularly those with smaller profit margins.
As the new tax comes into effect from 1st September, Association Chief Executive Officer Fantasha Lockington says they continue to receive thousands of questions from businesses in Fiji and overseas about how the levy will apply to existing bookings, deposits and transactions through wholesalers and agents.
She says a resort in the Yasawas has asked whether a booking paid in full in April for travel in October will be subject to the new levy, while a Sydney-based wholesaler wants to know whether it needs to return to clients who paid deposits months ago and ask for an additional 5 percent.
Lockington stresses that the association does not yet have complete answers to these questions, despite only 10 days remaining before the tax takes effect.
She says the concern is not simply about the additional cost, but how the tax is calculated.
Lockington explains that a business retaining 25 percent of its revenue as profit would see the 5 percent turnover tax take a significant share of its actual profit when combined with the existing 25 percent corporate income tax.
She says for an operator retaining 15 percent of revenue as profit, the 5 percent turnover tax would consume a third of its profit, resulting in a total tax burden equivalent to 58 percent of its income.
Lockington warns this could have a significant impact on smaller and mid-sized tourism operators already dealing with post-pandemic debt, seasonal exposure and rising compliance costs.
She stresses that businesses also need clear operational guidance on how the tax will apply to bookings already made and through wholesale and agent chains, particularly to prevent double taxation.
Lockington says Fiji’s tourism products are often priced and marketed overseas months or even a year before a visitor arrives, and uncertainty over tax treatment could affect the willingness of wholesalers to market Fiji.
She adds that affected tourism services would also face a combined 17.5 percent burden from the new 5 percent tax and existing 12.5 percent VAT, before the $200 departure tax is paid.
Lockington says this raises concerns about Fiji’s competitiveness against destinations such as Bali, Thailand and Vietnam.
She also questions why the tourism industry is being specifically targeted to support Fiji Airways when the airline serves the wider economy.
Lockington acknowledges Fiji Airways as a strategically important national asset, but highlights that the airline also supports trade, freight, medical travel and education, meaning other sectors benefit from its operations.
She also questions why the mechanism to support Fiji Airways should therefore be funded narrowly through the tourism industry, which she says is the airline’s largest single customer.
Lockington says the Association’s concerns are not an argument against Fiji Airways, but about whether the burden should be placed solely on one industry when the benefits of the national airline extend across the country.
She is calling for existing bookings that were contracted, deposited or paid for before the tax was introduced to be excluded.
They are also calling for clear administrative rules to prevent the tax from cascading through agent and wholesaler chains, a legislated sunset clause of no more than 12 months, and for the revenue collected to be ring-fenced, independently audited and publicly reported.
Lockington adds that the Association has proposed that Government consider converting the contributions into equity through a special purpose vehicle rather than treating them solely as a tax.
She adds they will continue raising its concerns until businesses have clear and workable answers before the Tourism Services Tax takes effect.
Questions have been sent to the Ministry of Tourism, the Ministry of Finance, the Fiji Revenue and Customs Service, and Tourism Fiji.
