BR Exclusive. Tourism industry reacts to VAT cut: 'It will not be reflected in the final price to the consumer'

Romanian PM Viorica Dancila announced this month plans to cut the VAT for hotels, restaurants and sports activities down to 5 percent. While stakeholders salute measures designed to boost their sectors, many say the measure is not sufficient. Moreover, several voices say the cuts will not be reflected in the final price to the customer.

According to Alin Burcea, Paralela 45 general manager, the fact that the tax cut does not apply to all stakeholders in tourism, but only for hotels, puts travel agencies at a loss. “Any tax cuts are good, but governments seem to have a positive fixation with VAT cuts, because successive governments have still reduced VAT. Now they have cut from 9 to 5 and what about it? the tax cut doe not apply to all tourist operators, but only to hotels. For travel agencies, the 19 percent VAT stays the same. We are the same country with many tourists leaving and few that come. Travel agencies remain 19 percent and if we are not stimulated, why bother? ” he notes.

But the tax cuts will not be reflected in prices, Burcea believes. “This VAT reduction will not be reflected in the final price to the consumer, that is for sure, because all hoteliers complain that they have increased their costs.That is why, he argues, “the impact is zero, because no one will reduce prices. On the contrary, everyone hopes to compensate for the increase in the cost of utilities such as water and gas.”

According to Burcea, the introduction of the measure does not imply that the Romanian government has upped its interest in the tourism sector. “The Government of Romania is complacent,” he says, adding that the Romanian authorities should do more to promote Romania as a travel destination.”There are 50 agencies that bring foreign tourists to Romania and 2600 travel to Romanian tourists abroad. I wonder if in 2018 the Romanian government will not be able to spend the promotion budget.” That is why, Burcea believes that while cutting the VAT for hotels “is a good measure, it is not sufficient one.”

In Burcea’s view, a useful measures would be to stimulate the construction of hotels. “We do not have enough hotels for tourists – It is necessary to build hotels – especially at the seaside. Secondly, the agencies should be stimulated to bring more foreign tourists to Romania. A third measure would be to make a well-thought-out promotion policy and the existing tourism promotion budget to be used,” he concluded.

Dragos Anastasiu, TUI Travel Center Romania general manager, welcomes the move but agrees that the tax cut is unlikely to translate into lower costs for services. “As a person that is active in the tourism sector I welcome all fiscal easing measures that comes to support the business environment. The sector has not been ‘pampered’ by the authorities in the past 25 years despite its huge potential,” he said.

“Whether the VAT cut will be reflected in a price drop for tourists, that remains to be seen, but previous experiences make me a skeptic.” He too points to the fact that the sector has major problems that the authorities have failed to address. “I would rather see measures that target the serious problems of the sector, which are related to the availability of talents, both professionals and entrepreneurs, and the promotion of Romania’s image abroad”

“On the short term, the VAT cut will help us,” he argued, “but on the medium and long term the areas mentioned above are the real priority,” Anastasiu concluded.

Maria Goicea, marketing director at Cocktail Holidays, believes that the measure is one that could support hotels to invest more. “The move to cut the VAT to 5 percent is one that can encourage accommodation units to make investments and develop further.”

“The costs of holidays packages could possibly go down, but at the same time we must look at the holiday vouchers, which created a very big demand on the domestic market, even bigger than the offer available in certain periods. It remains to be seen how the market will react to this legislative change.”

“The hospitality industry has received extra attention from the decision makers,” Nicolae Demetriade, ANAT head told Business Review. “It’s never too late for Romania to become a genuine tourist destination. The measured aimed at boosting the wellness travel sector are now complemented by the VAT cut to 5 percent for accommodation, restaurants, entertainment, which will boost the competitiveness of Romanian tourism.”

Demetriade is one of the few voices in tourism who believes that the VAT cut will be reflected in a price drop of accommodation costs and in restaurants. “I am convinced that those hotel owners that have put up for sale the holiday packages for the winter holiday before the VAT cut, will find other ways to supplement the services by offering extra facilities. We are happy that those who will benefit most of the measures are Romanians, who represent most of the tourists.”

According to Demetriade, Romanian tourism ‘has a tremendous potential, which is not exploited to the fullest.Any facility given to the industry can represent a competitive advantage, in a very dynamic field,” he said.

“We are still waiting for the new Tourism Law, are working together with the World Bank to make a strategy for tourism but are hopeful that the Government – which should understand that tourism is one of the most profitable industries – to find some real and effective mechanisms to stimulate private investors,” he said.

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