Crisis in the Travel industry!

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There is a real crisis in the travel industry and it is not being talked about. Government owes travel agencies over 500 million and this is making many travel agencies unable to operate.  This has caused some travel agencies to be blacklisted by IATA over  non-payment of proceeds from ticket sales. Find the story in today’s  Standard turbulent times as IATA threatens to deregister travel agencies.

For those who don’t understand how Travel Agencies work here is a summary. Travel agencies sell tickets on behalf of airlines. But by a certain date of every month they have to pay IATA the money that they owe for the tickets sold during the one month period. The problem comes in that travel agencies pay the money upfront but most  clients such as the government pay the travel agency a month or months later.

In this case the government owes the travel agencies huge sums of money which the travel agencies have already paid IATA to pay the airlines. They have been forced to take bank overdrafts to cover these amounts. And what happens when the bank is no longer willing to give the travel an overdraft because they owe them too much money? The travel agencies default on their payments to IATA. When you default IATA blacklists you and you cannot get credit from Airlines. This means that you cant sell airline tickets until you pay IATA what you owe them.  If you get blacklisted and default on your payments a certain number of times you lose your travel agency license. In effect this means that you are out of business permanently. When you lose your travel agency license it is so serious it is gazetted.

To further complicate matters the government introduced VAT for travel agencies. This means in effect that it becomes more expensive to buy from a travel agent then it is to buy from an airline because of service fees. Then the government wants to be paid this VAT levy on time. So the government expects the travel agency to remit the VAT to KRA by a certain date each month yet they themselves do not pay travel agencies on time. This means that now the travel agencies are being squeezed by the government on both sides, they are not being paid on time yet they are expected to remit the VAT from those transactions on time.

This in effect means that the government is making the travel industry environment unconducive to do business. As everybody knows government is the largest consumer of travel services both domestic and international. So when the government doesn’t pay its bills in time then the whole travel industry suffers. As I speak there are travel agencies that have been blacklisted and cannot sell tickets. That means loss of revenue, and probably job cuts as well. In the meantime other travel agencies are now choosing to pull back from selling to government or reducing their business. This is something the government cannot afford.

The government needs to take this issue seriously and sort out this crisis before it is too late. Because in the end everybody will lose, both the government and the travel industry.

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