Tourism VAT hike will spell disaster
- Written by E.Tsiliopoulos
SETE, the Association of Greek Tourism Enterprises has decried the troika demand for increases in VAT across the tourism sector, saying that the planned hikes would be ‘catastrophic’ as they will lead to 2.5 million fewer tourists in 2015, a 3.8 billion euro contraction of GDP and thousands of job losses.
Currently VAT on hotel stays is at 6.5%, but the troika is demanding the level be raised to 13%, a demand the government looks set to comply with.
At a press conference today, the President of SETE, Andreas Andreadis called the move ‘economic suicide’ and argued that, if implemented, the measure would trigger a domino effect across the Greek economy.
The figures stem from projections of the association’s research arm, SETE Intelligence, which examined a number of economic scenarios for 2015.
According to the analysis, implementation of the VAT hikes across the tourism sector would result in an additional 300 million euros being added to state coffers. However it would also cause the country’s GDP to shrink by 2% compared to 2014, or 3.8 billion euros.
Furthermore it would also lead to major job losses as according to SETE for every million tourists that arrive in the country 30,000 jobs are created.
The association argues that the losses would occur as contracts for tourist packages have already been signed with Tour Operators for the 2015 season. As such, if the VAT is effectively doubled it will force Greek businesses to renegotiate their contracts making Greek tourism less competitive and prompting tourists to choose other destinations.
“The VAT increase will bring an unavoidable increase in package costs as the majority of Greek tourism businesses, with accumulated damages from the past years, are not in a position to absorb its doubling. As such, demand for Greek tourism packages will fall at a precipitous pace,” SETE writes.
The Association also points out that the VAT hike will render Greece uncompetitive at a time when the green shoots from tourism are largely driving the country’s putative economic recovery (In Turkey VAT on food and lodging is 8%, in Portugal it is 7% and in Italy and France it is at 10%.)
“The specific measure will harm, mainly, the thousands of small and medium businesses which are attempting to survive, to pay their taxes and social security contributions, to stay competitive and maintain the jobs they have created. Additionally it will harm much more those businesses which are not in the most heavily visited areas of Greece, as well as those businesses that are directed towards domestic tourism, which began to show the first signs of recovery this year, but with the VAT increase will certainly lose their dynamism,” SETE writes.
According to the president of the Pan-Hellenic Confederation of Hoteliers, the VAT hike will also be damaging for hotels in major cities which have low profit margins and must keep prices as low as possible to keep their rooms full.
According to the initial estimates, if the VAT hike is implemented it will increase the price of tourist packages by about 5%, which in the international tourism market, officials say, is more than enough to send tourists elsewhere.
