The cost of air travel and hotel accommodation in Africa could go up following a decision by African states to impose an additional tax on air tickets originating from the continent and on hotel stays by foreigners.

The proceeds will finance the African Union budget, which has for a long time relied on donor funding.

Rene Kouassi, director of the Economic Affairs Commission of the AU, said that the 54 African countries had agreed to impose a $10 surcharge on airfare per passenger travelling out of Africa and a tourism tax of $2 per stay per person in a hotel within the continent.

The proposed alternative funding is expected to bring about economic freedom for the AU, allowing the continental body to engage in activities other than those stipulated by donors.

The decision was reached after the recent AU Heads of State Summit in the Ethiopian capital Addis Ababa.

“The heads of state, during the Summit, directed partners to consult more on the proposed financing mechanisms that were presented to them early in the year and the team of experts agreed on the two as the best options for financing the AU budget,” said Mr Kouassi.

He added that the heads of state are expected to adopt the decision at their next Summit mid this year.

READ: Taxes on hotels, air tickets, SMS face resistance

According to the International Air Transport Association (IATA), Africa has 294 million air passengers annually. If a levy of $10 were imposed on each traveller, the AU would collect $2.9 billion in one year.

The UN World Tourism Organisation figures for 2014 show that Africa received 56 million visitors, a two per cent increase from the previous year. If each of these visitors spent just one night in a hotel, the sector’s contribution to the AU would amount to $112 million, out of a target of $730 million.

Initial proposals approved by the ministers included a $5 levy on air tickets originating from or coming into Africa, a $2 levy on member states’ hospitality sectors, a 0.1 per cent levy per text message sent from Africa and a 0.5 per cent levy on national budgets.

Easiest approaches

“After evaluating all these mechanisms, it was felt that the tourism-hotel levy and air ticket tax were the easiest approaches as they did not have as many challenges as the others and none of the partner states will feel exploited for contributing more to the budget,” Mr Kouassi said.

“Telecommunication rates differ in many countries, depending on the company and location. Some countries may take longer to impose the levy on SMSs in an effort to persuade telecom companies to reduce their SMS charges and add the AU levy.”

He said if the 0.5 per cent levy on the countries’ budgets were imposed, then there was going to be the debate of the bigger economies contributing more than the rest.

Jacob Oduor, principal research economist at the African Development Bank (AfDB), said that although the move is a good step towards sustaining Africa’s growth and dynamism and its ability to finance future infrastructure development, it is unlikely that the decision will be implemented soon.

“The air tickets, especially for African airlines flying outside the continent, are already high,” said Dr Oduor. “An extra $10 tax means holding consultations with the airlines to adjust their air charges.”

He added that the extra levy on the hotel stay will mean some countries paying more than the others because they attract more visitors.

“But it is generally a good means of getting funds as it does not affect the country directly as a tax on their budget,” he noted.

Dr Oduor however said that it is likely that some countries will criticise the proposals as it could look like an added expense on their tourism sectors and unduly sparing of the oil and mineral sectors. 

“Most African countries are rich in natural resources such as gold, copper and oil, and this should have been taken into consideration too,” he said.

In 2014, airlines on all the other continents made profits; the previous year, African airlines had made a net loss of $100 million, according to IATA reports.

The flight and hotel levies could contribute $431 million and $151 million, respectively, to the AU’s coffers this year. But the new funding models, if implemented, could aid dependency and ease pressure on key donors Libya and Egypt, which cannot afford to contribute at the same levels as before.

The AU sources only 28 per cent of its $500 million operational budget from its own members. In addition, it has to source an additional $750 million for peacekeeping operations — with the funding gap filled mostly by the European Union, the United States, the World Bank, China and Turkey.

“We need to be in a position where, in the event of emergencies like Ebola, we have the means to intervene quickly and without having to wait for foreign money,” said Dr Sipho Moyo, Africa executive director for ONE, an international campaigning and advocacy organisation. “Money from donors always comes with strings attached.”

Dr Moyo pointed out that there is a need to improve domestic resource mobilisation by ensuring financial deepening and inclusion, for instance domestic savings and microfinance, tax and fiscal reforms; encouraging public private partnerships; and deepening capital markets.

“This also includes strengthening the ability of Africa to capture revenue lost through corruption and illicit financial flows,” she noted.

In the 2015 budget, donors are expected foot 72 per cent of the $1.281 billion 2015 budget bill with contributions from member states funding the balance. The proposed assessed contribution of member states towards this year’s budget is $148,427,666, or 28 per cent of the total budget.

The lion’s share of the AU budget goes to peace and security, which is almost entirely funded by the EU.