There is much public discussion about the need to increase budget revenues and eliminate exceptions from the fiscal framework as a necessary and urgent response that public authorities must take to avoid the excessive deficit that threatens Romania in 2023 and beyond. In addition to these discussions, a document from the World Bank is circulating that suggests certain measures to be taken and even documents from coalition parties that compete in fiscal measures aimed at saving the situation.
Among these measures, we also found the proposal to increase VAT in tourism from 9% to 19%, a surprising and insufficiently argued proposal, which will not bring anything good for Romanians and for Romania. Allow me to list here 5 arguments that demonstrate these statements 1. The application of reduced VAT rates in tourism is not an exception, it is the rule according to which this sector operates throughout Europe.
1. The application of reduced VAT rates in tourism is not an exception, This is the rule by which this sector operates throughout Europe.
See in this table the VAT rates with which the tourism sector operates throughout Europe. France 10%, Germany 7%, Austria 10%, Belgium 6% and so on. If Romania were to switch to a VAT of 19%, it would be the 3rd country in Europe after Denmark and the UK, do you think we can talk about competitive advantages then for Romanian tourism? It is a decision that takes us off the map of international tourism and which, once taken, someone must assume.
2. Tax evasion in tourism is, unfortunately, a reality. The state has not yet found the methods by which this evasion can be combated and we have many gray and black areas here – accommodation in Airbnb-type apartments, organization of events (weddings, baptisms, concerts, fairs, etc.), accommodation and food in certain resorts or rural areas. The additional income that the state seeks from tourism must be taken from these areas and not put pressure on those honest taxpayers. There is a high probability that, once the VAT in tourism is increased, this evasion area will increase and, taking into account the inability of the tax authorities to control (in the absence of digitalization) the flows of tourists, the effect will be the opposite, namely the amounts collected will be lower.
3. The social cost of VAT increases . The increase in tourism tariffs is seen all over the world and comes as a consequence of inflation and increased operational costs. The switch to a 19% VAT in tourism would bring another tariff increase that the population cannot absorb. Neither Romanians – who represent over 80% of the country's tourism market – nor foreigners, who have many other options where to go on vacation. The market simply cannot absorb another tariff increase, this time resulting from tax changes, especially after having had to bear the increases brought about by the pandemic and inflation. And the settlement of such a decision will also come from an electoral point of view, let's see who assumes it. 4. Reducing investments in tourism Romania desperately needs investments in tourism. It is the only way we can re-enter the international circuit, to invest in new accommodation units, in new restaurants, to restore the existing ones, largely inherited from the communist regime, to invest in entertainment and transport centers. Unfortunately, by changing the fiscal regime in tourism, the last argument that stood, namely the friendly fiscal framework, disappears. Because, unfortunately, there ARE NO other arguments in attracting investors to tourism, such as appropriate infrastructure, a strategy to promote Romania as a tourist, the organization of destinations, a simple and efficient legislative framework, education of the workforce or others.
4. Reducing investments in tourism Romania desperately needs investments in tourism. It is the only way we can re-enter the international circuit, to invest in new accommodation units, in new restaurants, to restore the existing ones, largely inherited from the communist regime, to invest in entertainment and transport centers. Unfortunately, by changing the fiscal regime in tourism, the last argument that stood, namely the friendly fiscal framework, disappears. Because, unfortunately, there ARE NO other arguments in attracting investors to tourism, such as appropriate infrastructure, a strategy to promote Romania as a tourist, the organization of destinations, a simple and efficient legislative framework, education of the workforce or others.
5. The context the sector is going through – the recovery after two years of lockdown caused by the pandemic We all know what tourism went through in 2020 and 2021, the biggest crisis in the entire history of this sector. We also know that the VAT increase from 5% to 9% was recently adopted. We were in intensive care for two years, we have been out for a year and we are trying to regain our strength and function normally, but with little chance of success if such threats come to us every year. Enough, esteemed politicians, the recent VAT increase was enough, don't come up with another increase, because we don't have the strength to carry it. Neither do we, nor our customers. We are exhausted after two years that we don't want to remember, we need resources to invest, to recover, so if you care about this sector, leave us as we are now and the results will start to be seen soon. Any other option shows, through its rulers, that Romania does not care about this sector, that Romania's interest in tourism simply does not exist.
Article written by Călin Ile, Honorary President of FIHR, President of the Board of Directors of Aro Palace Brașov
