Comments to answers

The Finance Act 2016 has included the service of tour operators as exempt for VAT.

Does this mean that there is no VAT chargeable on all the package vacations and commission earned by the companies as well?

Yes that's what it means.

Tour operators :
To understand the VAT treatment you need to breakdown what tour operators do which is they essentially are brokers PERIOD. They earn commissions on services already taxed. Kindly note that this problem is also an issue in say Europe where this is big business.

How did they deal with it?

Background :
Essentially tour operators do not sell UNIQUE products. And even where they claim to do so its easily replicated by others.

Example :
A trip to Masai Mara by air / road to a tented camp / lodge and then daily park visits sold by A&K travel. The Tour operator operates like an insurance broker. Cash is collected in advance and paid to the service providers less agreed commission. The underlying service is already taxed at SOURCE.

VAT Requirements
Input VAT can be claimed fully to the extent that the expenditure incurred relates wholly to the production of taxable supplies.

Mixed Supplies
A mixed supplies situation arises where one makes both exempt supplies
and vatable supplies (standard (16%) rated and zero (0%) rated) simultaneously.

If mixed supplies are made and one cannot specifically attribute input tax to a particular sales item then input tax is claimable as follows;

1. At 100%, where taxable supplies (at 0% & 16% vat rate) constitute over 90% of total sales.


2. None where EXEMPT supplies (sales) constitute over 90% of total sales.

For tour operators given that they are, from June 2016, exempt from VAT they cannot load VAT on their invoices. In the same token none can be claimed in a VAT-3 monthly return as input VAT.

That means that tour companies will always be having a VAT claimable as long as this law is in effect

CPA John you are actually right but the only difference between the "tour operator brokers "and the "normal brokers" is that most of their invoices are in the name of their company whereas the "normal brokers" will use the name of the company they are rep