Tougher times for hotels as utilities, VAT weigh heavily on operators

The domestic hotel industry faces an uncertain future as hikes in utility tariffs and value added tax (VAT), as well as other operational costs, threaten operators.

With electricity tariffs having shot up significantly on two occasions within the last six months – 26.6 percent in September 2022 and 29.9 percent this February totalling 56.5 percent; water has gone up 48 percent over the same period, 39.7 percent and 8.3 percent for last September and this month respectively. This, coupled with a 2.5 percent increase in VAT and rising fuel costs, the Ghana Hotels Association lamented, is affecting hotels’ bottom-lines.

“Hotels are not even fighting for significant profit margins in this current economic environment where we find ourselves. I do not think a lot of the hotels are even making a profit any more. It has become a game of survival. Any changes to the rate will be based on the utility changes that we see.

“Additionally, VAT has gone up and some other prices have increased. Unfortunately, we will continue to see some of these things until the business landscape improves,” its President, Dr. Edward Ackah-Nyamike, told the B&FT.

Worryingly, he said hoteliers currently find themselves in a very difficult situation over an inevitable increase in rates – due to rising cost of operations against declining spending power of Ghanaians.

“The hotels have tried as much as possible to cushion some of the adjustment in cost of their operations, but to what extent and for how long can they sustain it? We will have to survive, and survival means that the input must balance the output,” Dr. Ackah-Nyamike Jnr. said.

Should the industry decide on a rate reflective of the increases in other variables, it means that hotel prices could see a significant jump – which could potentially damage occupancy rates because of heightened economic conditions. This will also impact the hospitality sector’s contribution to national revenue.

Last month, the Public Utilities Regulatory Commission (PURC) announced a 29.96 percent and 8.3 percent upward adjustment in electricity and water tariffs respectively, effective February 1, 2023.

The new adjustments were announced as part of the Quarterly Tariff Review Mechanism and Guidelines and were occasioned by unfavourable macroeconomic factors such as inflation and currency depreciation – and their effect on raw material imports, utilities regulator the PURC indicated.

The Hotels Association is not the only business group that is lamenting impacts from the latest hikes in utilities and VAT. The Association of Ghana Industries (AGI) warned earlier that the hikes in electricity and water tariffs could dampen hopes of business-recovery and employment prospects.

AGI’s Chief Executive Officer, Seth Twum-Akwaboah, said in a statement to the B&FT that: “The level of utility tariff increments for water and electricity as captured in the PURC’s release is too high for industry to bear, particularly at this time”.

He added that though utility companies need to recover the cost to sustain their operations, when end-user tariffs get to unbearable levels the effect could be dire for both industry and the utility companies.