Hoteliers: Let our VAT at least remain the same, an increase would negatively impact investments and competitiveness

If the current VAT rate for hospitality and tourism of 13 percent cannot be reduced, then let it at least remain as it is, because any increase in VAT would negatively impact investments in tourism and its competitiveness, stated Ronald Korotaj, president of the Association of Employers in Hospitality of Croatia (UPUHH) on Wednesday.

Korotaj was on Wednesday at the Ministry of Tourism with UPUHH Vice President Ivica Sabljić and Director Iva Bahunek for a meeting with Minister Gari Cappelli and his associates regarding the topic of VAT and announcements about increasing the VAT rate for hospitality from 13 to 25 percent.

Noting that the aforementioned stance on changing the VAT rate is shared by all associations and unions of hoteliers and hospitality – UPUHH and those at HGK and HUP, Korotaj emphasizes that these associations are based on the Tourism Development Strategy until 2020, one of the main provisions of which is to reduce VAT for hospitality and tourism to a level similar to that in Mediterranean competitor countries, without which Croatian tourism is less competitive compared to them.

– A reduced or intermediate VAT rate for hospitality and tourism, i.e., for accommodation and food, has already shown its potential in good tourism results and especially in investments that are only growing in the sector. Therefore, if the rate cannot be reduced below 13 percent, let it at least remain as it is, although that is also one of the highest rates among our competitor countries, Korotaj emphasizes.

He points out that hoteliers do not agree to any compensatory measures, but that VAT should remain as it is.

He assessed the support and understanding they received from the Ministry and Minister Cappelli at the meeting on Wednesday as extremely important, as they also support the goals of the Strategy.

– We do not know what more we can do if the increase in the VAT rate for hospitality really happens. We consider that proposal only a short-term measure and something like ‘take where there is’, but it is certain that we will not just stand by and watch what happens, warned Korotaj.

He believes that an increase would not only drastically reduce earnings but also investments, and even Croatia’s position among foreign partners in the international market, given that the ‘rules of the tax game’ are changing again.

He also assesses that this would negatively affect already concluded contracts and those that are yet to be concluded for the next season, noting that what has been agreed, especially for allotment guests, cannot be changed, and due to those contracts, new ones cannot be concluded, for example, with higher prices, as that is not market-correct and prices will not increase, meaning less revenue and less money for investments.

– We told the minister all of this, as well as that it is now extremely important for Croatia and its tourism to at least maintain the tax situation we have in the next two years, as it is predicted that it will take approximately two years for countries like Turkey and some other currently ‘threatened’ countries to recover their tourism, and that is an opportunity for us. This means that already from 2019, the situation for Croatian tourism could be much tougher, and we have all more or less started with some investments in the sector, and now is the right time to help tourism, not to burden it further, emphasized Korotaj.

When asked what they would do if the rate increased from 13 to 25 percent and came into effect on January 1 of the following year, Korotaj said, “we do not know, but investments will certainly stop, as the parameters are changing, and considering that it is a differentiated rate within one product, for example, accommodation services with food (half-board, full-board, etc.), we do not even know how we will calculate that, as there are now different rates for accommodation and food.”

– We will monitor what will happen next. It is important for us to have the support of the relevant ministry, and we will react according to the development of the situation, concluded Korotaj.