Looming taxation to cripple fledgling Airbnb businesses
Friday, May 28th, 2021 00:00 | 3 mins read
Ezekiel Mureithi founder of Manorcom, a listing company for Airbnb and rental houses in Kenya works with other hosts to market and secure them clients both on short-term and long-term stays.
Milliam Murigi @millymur1
How organised is the Airbnb sector in Kenya?
At the moment, it is every man for himself. It is quite informal. Many of the properties are not registered with the government despite the fact that they are operational and are listed on advertising and booking sites such as Airbnb and Booking.com.
And what has been the impact of Airbnb on the tourism industry?
Airbnb has contributed immensely to the tourism sector, because they offer a wide variety of options to choose from and presents the clients with favourable prices compared to hotels and lounges.
Currently, it is easy to find a cozy, well-kept two-bedroom furnished apartment for a day starting from Sh3,500.
Because of these favourable prices, tourists both local and international, who are cautious about their budget are preferring to stay in these accommodations.
What is required for one to start hosting?
For you to start hosting, you need a physical location to set up the Airbnb facility (rent depends on the rates of the area), a business permit from the county offices, a license from the Consumer Protection Board and Kenya Revenue Authority and a permit from the Tourism Regulatory Authority, which varies from Sh1,000 to Sh3,500 annually.
Has Covid-19 had any impact on this sector and what are hosts doing to ensure they remain afloat?
Yes, a big impact indeed. While many people have listed their furnished apartments and houses on the Airbnb website, the bookings have gone down significantly, because of Covid-19.
International tourists and travellers that use websites, such as Airbnb.com to book their stay in Kenya are no longer there.
Therefore, hosts have resorted to targeting another market and that is the local market using local listing websites, such as ours.
This has really worked to their benefit, because Kenyans who get caught in between curfew hours usually find accommodation for the night and even longer periods of time on these local sites, and that is why the sector is gaining such traction.
The government plans to start taxing this sector, how effective will this be and what impact will it have on the sector?
The introduction of tax to the sector is a wrong move by the government, because many vacation rentals operate outside the parameter of the Airbnb.com website, meaning they are not registered.
This will make it difficult for the government to track those who own accommodation establishments.
While the government will succeed in introducing the new taxation law, it will be ineffective when it comes to execution.
It will also be difficult to determine the difference between a normal rental house and vacation rental.
So far the largest number of the hosts are against the proposed taxation, because we were not consulted before this proposal was done.
Apart from that, the tax proposed is too high and when you add other operational costs, it becomes a loss-making business.
There are a lot of costs that many people overlook and only see the final profit.
For example, a studio in Kilimani will cost a host an average of Sh120,000 monthly rent, with the addition of running cost and water and furnishing of the apartment. Therefore, at the bare minimum, the host will use Sh150,000 to run the home.
For the host to cover the running costs of the apartment, it means they have to host guests for 30 days renting out the apartment at Sh5,000 per day.
At times this is not possible, especially during the pandemic and many end up making losses.
So, any additional taxation will cripple the Airbnb business. It is much wiser to tax individual tax returns based on how much the host was able to make in a year than introduce a blanket tax.
If the taxation is fully implemented what impact will it have on the pricing?
Like any other expense, operators will pass on the cost to the end consumer, and this means that prices for Airbnb establishments will rise. On average prices will go up by utmost Sh1,000 per unit if the taxation is implemented fully.
Are there regulations governing this sector?
Yes, laws to regulate the industry are well laid, but the execution is a big challenge.
The reason being as I said, it is difficult to differentiate an Airbnb facility and a private citizen apartment.
If the government wants to organise this sector, I would advise them to stop using the crackdown method since this is not a criminal or illegal business.
They should instead meet the Airbnb operators and let them explain what would work for the industry.
Such will guide the government to come up with regulations that favour both sides.
Introducing blanket tax in an industry they have no knowledge about is the wrong way to go about it.