High VAT Rate Killing Croatian Tourism Investments

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If the VAT rate remains the highest in the Mediterranean, the tourism industry will lose 2.5 billion euro in potential investments by 2030.

If the value-added tax rate in the Croatian tourism remains as it is now – 13 percent for accommodation services and 25 percent for catering, Croatia will lose 2.5 billion euro in potential investments by 2030. That means that the Croatian tourism industry will lose 200 hotels and 80,000 beds, reports Večernji List on February 11, 2018.

In the short term, by the year 2021, about 11,000 high-quality rooms will not be built, the tourism will open 8,500 new jobs less than with a lower VAT rate, and the loss in the gross added value is estimated to be 7.7 billion kuna. “When we know that 2.1 billion euro were invested from 2014 to 2017, we can see that our tourism industry is not achieving the seven billion euro goal set out by the development strategy by 2020. In the European Union, 18 countries have a VAT rate of ten percent or less, while 17 countries have a reduced VAT rate for restaurants. In the EU, only Denmark and Croatia have a 25 percent rate for the catering sector,” says Branko Bogunović from the HD consultancy, which has prepared an analysis of the VAT impact on tourism.

The study shows that by 2019 the government will start collecting less revenue than if the ten percent VAT rate had remained. It is also believed that tax discipline would be higher.

Josip Zaher, vice president of the Croatian Chamber of Commerce, which financed the study, shares dissatisfaction with the current tax system in tourism. He points out that in 2013 when the tourism industry VAT was ten percent, the sector was marked by the highest rate of growth in investments and employment since Croatian independence.

“We are operating on the global market, and we just want to have the conditions such as exist in our direct competitors. They often ask us why we invest at all if the VAT rate is too high? Well, the reason is the fact that we are part of the market economy, and we cannot stagnate in our quality because we will fall behind,” says Ronald Korotaj, the head of the Hotel Owners’ Association.

Last week, the hotel owners presented their arguments for a 10% VAT rate to the government. “They did not reject the proposal outright, but it seems to me that we cannot expect a correction in the next two to three years,” explains Tomislav Popović, the CEO of Maistra tourism company.

Translated from Večernji List (written by Radmila Kovačević).


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