ATHENS – Greek tourism officials are furious over government plans to double the Value Added Tax (VAT) on rooms to 13 percent in a sector that’s helping drive an economic recovery.
According to the calculations of the Association of Hellenic Tourism Enterprises (SETE), the hike would lead to moderate VAT revenue growth of 283 million euros, but would also slash the Gross Domestic Product (GDP) by up to 3.8 billion euros.
At a press conference regarding the possible VAT hike, SETE head Andreas Andreadis said the scheme was fiscal suicide and would hurt the most important revenue engine the country has, which is experiencing a second straight record year.
The tax was cut to 6.5 percent in 2012 after Prime Minister and New Democracy Conservative leader Antonis Samaras took office and helped spur a return of visitors scared away by images of protests, strikes and riots against austerity measures being imposed by international lenders.
The plan to double it again is to satisfy the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) which is squeezing Greece to implement more reforms before Samaras can realize his hope of taking an early exit from the terms of two bailouts of 240 billion euros ($306 billion) given since 2010.
Citing the analysis of economic scenarios for 2015 by SETE Intelligence, Andreadis said the tax hike would backfire and push tourists to other countries, reducing the expected effect.
The report said the measure would generate a negative domino effect in the economy, reducing GDP by more than two percent and hurt the labor market, as for every million tourists missed out on, some 30,000 jobs would be lost. Andreadis added that the impact on the flow of tourists would amount to 2.5 million fewer next year and even greater losses in 2016.
He warned that if the VAT rate on accommodation doubles, hotel enterprises will be forced to renegotiate with tour operators, rendering Greek tourism less competitive and pushing millions of tourists toward the country’s competitors, especially Turkey, which has an 8 percent VAT, as well as Portugal, with 7 percent and Italy and France at 10 percent.
Hellenic Hoteliers Federation President Yiannis Retsos added that hotel enterprises will be forced to pass on the cost to guests who will opt for other countries in many cases. The first estimates point to a hike of 5 percent that would take the cost of an overnight stay in a 100-euro room to 105 euros.
The President of the Hellenic Confederation of Commerce and Entrepreneurship (ESEE), Vassilis Korkidis, said that doubling the tax though “rights the wrong committed in 2011 in the case of all-inclusive hotels, as in the midst of the crisis those units enjoyed privileged treatment by having their services enter the reduced rate of 6.5 percent.”