The popularity of internet-based short-term vacation rentals has exploded in Africa. These short-term rentals include Airbnb, VRBO and HomeAway, the most popular of the lot being Airbnb. Of the top eight fastest-growing countries in the world for Airbnb guest arrivals, three are located in Africa —i.e., Nigeria, Ghana, and Mozambique. The travel industry in Africa continues to grow partly because of the use of technology to tell stories of Africa’s diversity and authenticity, as well as the investment opportunities in the continent. Also, in recent years, there has been an influx of people of African descent to the continent, particularly Ghana as a result of the innovative “year of return” initiated by the Ghanaian government, which was estimated to have brought in $1.9 billion to the Ghanaian economy.
The introduction of internet based short-term vacation rentals like Airbnb has brought in additional growth and economic impact for Africa and created jobs. A 2018 survey showed that Airbnb had an estimated $678 million economic impact on South Africa alone. Property owners use Airbnb to diversify their streams of income, and the economic impact corresponds to a total of over 22,000 jobs supported across the broader South Africa economy.
Many African countries have not regulated the activities of Airbnb because laws and regulations have not kept pace with the digital revolution, and it will take a while for governments and regulators to catch up. Most African countries have not fully grasped the revenue generation possibilities and adverse effects of Airbnb and its peers if they go unregulated. The major cost to African countries on the use of Airbnb is loss of revenue. The use of Airbnb and other internet based short term vacation rental diverts business from regular hotels which asides from their operating expenses, are heavily taxed depending on the location. Airbnb operates a similar business model as traditional hotels while escaping a large percentage of overhead costs associated with traditional businesses. Therefore, they should be subject to taxation.
In several African countries, Airbnb encourages hosts to manually calculate occupancy taxes and add it to their fees on the booking page. This kind of system does not account for transparency and consistency and will deprive countries of revenue. Whereas, in the fifty states in United States as well as several countries worldwide, Airbnb has made arrangements with governments to collect and remit local taxes on behalf of hosts. Airbnb imposes the taxes at the time of booking and remits same to the applicable tax authority on the hosts’ behalf.
For emphasis on the size of Airbnb remittance, in 2019 alone, Airbnb remitted a total tax of $136.7 million to the state of Florida. Apart from the loss of revenue to the system, potential problems that could arise from lack of regulation includes housing shortage, rent control, safety, human trafficking and other crimes. According to Airbnb, the company is required to collect VAT on its service fees in countries that tax electronically supplied services. Currently, this includes all countries in the EU, Switzerland, Norway, Iceland, South Africa, and Albania.
Nigeria, which has the largest economy in Africa stands a lot to benefit from the regulation of internet based short term vacation rentals. The Nigerian government recently passed into law, the Finance Act of 2020. This law imposes a five to seven percent VAT on internet-based non-resident corporations who have a Significant Economic Presence (SEP) in Nigeria. The law does not define SEP, but using the Organisation for Economic Co-operation and Development (OECD) factors, SEP will include the extent of revenue generation, the existence of a user base and sustained interaction with the economic life of a jurisdiction through digital means. Nigeria can slowly work her way out of deficits if she implements this law on internet based short term vacation rentals.
Airbnb is the largest internet based short term vacation rental company, and was recently valued at $26 billion, down from $31 billion in 2017, because of the negative impact of COVID-19. There is also a likelihood that the company will have its IPO in 2021. In as much as African countries and in the case of Airbnb, African citizens are directly benefiting from globalisation by generating income through Airbnb, African governments must be wary and ensure that regulations and standards are put in place to fully harness its advantages.
To discuss this article further, or about navigating opportunities, regulation and government relations on short term rentals, you can contact the author on LinkedIn.
Shade Amole
Amole is an attorney licensed to practice in the state of Florida, United States. She is also licensed to practice law in Nigeria. She has government experience on the regulation of short-term vacation rentals.
