PwC study: Fiscal facilities would grow the recreational services market seven times by 2021

Romanian tourism is on deficit with more money spent by Romanians outside the country than the amounts foreigners spent in our country. The deficit was around EUR 1 billion last year, but this is not the only problem of tourism. Among the things that can be fixed there are the recreational services that could be boosted by fiscal facilities.

According to an analysis by PwC Romania, applying a reduced rate of 9 percent VAT for recreational services would generate a positive impact of about RON 340 million on the state budget by 2021. The report ‘Analysis of the market of recreational activities and complexes in Romania’ reveals that the number of visitors to recreation complexes would have an average annual growth of 30 percent by 2021. This growth would contribute to the development of the sector almost seven times, rising from RON 36 million (2018) to RON 240 million (2021).

Services like food and accommodation already have a reduced VAT at 9 percent, while cultural shows have an even smaller VAT at 5 percent. But spas and wellness services at hotels are taxed with VAT of 19 percent.

But this measure would also meet the need to care for the health of the population. Romania has an incidence of cardiovascular mortality three times higher than the EU average of one thousand inhabitants. Only 15.6 percent of the country’s population is devoted weekly for one hour to sports and recreation, compared to over 50 percent at European level. At the same time, Romania represents a higher percentage of smokers in the total population and the higher per capita consumption of alcohol, compared to the average in the European Union.

From a fiscal point of view, at the level of the European Union, 14 Member States chose to apply a reduced VAT rate in national legislation for various categories of recreation. In January 2018, the European Commission made public a proposal to amend the VAT Directive in order to increase flexibility in the Member States as regards the application of VAT reductions and to give them more freedom of choice.

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In Germany, favorable fiscal policy, increased competitiveness of tourism has facilitated the significant development of the aquatic and thermal park industry, reaching a value of 26 billion euros. The reduced VAT rate (7 percent) for recreation services facilitates the development of this sector that employs over 355,000 people in nearly 270 Spa and Hydrotherapy facilities.

“Applying a reduced VAT rate to this sector would have a significant multiplier effect due to the development of new related activities for which additional taxes and duties would be paid. Developing the industry and attracting investment would be two of the effects of such a measure. Increased collection would be achieved by stimulating consumption in the recreation area and diversifying accessed services. Practice has shown us this as a result of a reduced VAT rate in the food industry as of 1 June 2015. At the same time, the effect of reducing the VAT rate would have a positive impact on the reduction of the ‘gray economy’ places Romania on an undesirable leading position among EU member states”, says Daniel Anghel, partner, tax consultancy at PwC Romania.

France has the most developed leisure market in the European Union, mainly thanks to Disneyland Paris, facilitated development and reduced VAT, currently worth 10 percent.

This industry generates a total impact in the economy of EUR 4.2 billion per year. In France, the recreation market is made up of 44 major recreation complexes and theme parks that attract over 50 million tourists annually. This generates a significant economic and social impact at national level, with the creation of more than 20,000 direct jobs annually and opportunities for students, young people and service providers.

The reduced VAT rate of 8 percent in Poland facilitates access to entertainment and leisure activities such as amusement parks and other recreational activities. In this way, Poland manages to attract significant investments in theme parks worth more than EUR 200 million. Encouraging companies in this area by applying a reduced VAT rate predicts investment growth of around EUR 0.8 billion by 2020, and will generate about 2,000 direct and indirect jobs.

“Stimulating the industry by applying a reduced VAT rate would generate an additional 1.1 million visitors for recreation complexes in Romania in 2021 compared to the current situation. Adding to this and the estimates of population growth together with a higher percentage of revenues for such activities, we have the full picture of the development of the profile industry in parallel with attracting additional investments,” says Bogdan Belciu, partner, business and management consultancy services at PwC Romania.