The Effect of Value Added Tax Act 2013 on tours value chain in Kenya’s tourism industry

A research dissertation submitted in partial fulfillment of the requirements for the award of Degree of Master’s in Business AdministrationTourism sector in Kenya holds a strategic importance in the country’s economy providing significant socio economic benefits. Tourism sector is sensitive to taxes, however it cannot be exempt from them since tax is a significant source of revenue for national budget. VAT most strongly affects the tourist competitiveness of the country. The purpose of the study was to assess the effect of Value Added Tax Act, 2013 on tour value chain in Kenya’s tourism industry. The study was based on two theories; Ability to Pay Theory and Benefit Theory; with a view to address the following three questions: - what is the effect of introducing VAT in transportation of tourists on tour value chain in Kenya’s tourism industry?; what is the effect of introducing VAT to tour products on tour value chain in Kenya’s tourism industry?; and what is the effect of imposing VAT on locally assembled vehicles on tour value chain in Kenya’s tourism industry?. Applying descriptive research design, the study targeted the 303 members of Kenya Association of Tour Operators. Both primary and secondary data was used for the study. A questionnaire was used to gather primary data while secondary data was gathered from audited financial records of KATO members, government records and other records from the KTB. Primary data was analysed using factor analysis and presented by use of frequency distribution tables, mean scores and standard deviations. The study found a positive association between tour value chain and tourism products. The results also reported a prima-facie evidence of a positive association between tour value chain and price of cabs services. It was found that locally refurbished and improved tour vans had the strongest relationship with tour value chain in Kenya’s tourism sector. The findings of this study may be used as a basis of enhancing tax policy in addition to filling the gap about what is currently known about VAT revenue function in Kenya