Tourism Industry Warns about Reduced Investments Due to VAT Increase

Total Croatia News

Government’s tax reform plans continue to attract criticism from tourist sector.

While Croatia’s competitors are focusing on preparations for 2017 and beyond, in meetings with partners from the United Kingdom and other markets we have been asked about proposed changes in tax policies, said Davor Brenko, Valamar’s vice president of sales and marketing, who is attending the WTM Travel Market in London, reports Jutarnji List on November 8, 2016.

Brenko was speaking at the Croatian stand at WTM, which opened its doors on Monday for about 5,000 exhibitors, around 100,000 professionals, and about 3,000 journalists from around the world. “Our partners are concerned, just like us. It is not clear why such important tax changes are being introduced at the end of the year when a lot of deals for 2017 have already been made”, said Brenko.

One consequence of the increase in the VAT rate from 13 to 25 percent for restaurant and catering services could be price increases, which worries Croatian partners, because tourists from Europe could understand it as an increase in the price of travel and think that Croatia has become a more expensive destination.

Brenko pointed out that the VAT increase will come in a year when Croatia as a destination has finally managed to create a little more interest among the world’s major tour-operators and hotel chains. “However, we do not expect that partners will cancel their contracts for 2017 or that fewer guests will come from British and other foreign markets, but it is obvious that they are looking at our offer with less enthusiasm and say they it is all very strange and confusing”, added Brenko.

Talking about prices, he said that some of them will certainly increase and that part of the hospitality industry could turn to gray market. He expects a decline in investments in joint projects, including from air carriers, and his opinion is shared by president of the Association of Croatian Travel Agencies Boris Žgomba.

“This is bad timing for such important legislation on VAT to be proposed overnight, without consultations and discussions with the tourism sector and without being able to prepare, since there are just two months from the first announcement to full implementation. This is not appropriate for a government which should take care of its economy and not change rules of the game after the game has already begun”, warned Žgomba.

According to an analysis prepared by HDC consulting company and consultant Sanja Čizmar, if the VAT rate increases from 13 to 25 percent, the tourism and catering industry would lose about 12 billion kuna worth investments in the next three years. “By increasing the rate, we would return to the level of about 2 billion kuna in investments per year, as opposed to 4.3 billion kuna this year”, said Čizmar, predicting that this could reduce the competitiveness of Croatian tourism and close around 10,000 jobs.

The result could be a negative impact on GDP growth, reduced budget revenues and an increase in the underground economy. With the increase, Croatia would have the highest VAT rate in tourism in the Mediterranean. France, Italy and Spain have the rate of 10 percent, Portugal of 13 percent, Cyprus of 9 percent, Austria of 8 percent, while the average for the entire EU is 15.1 percent.


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