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Greek hotels fear tax hike

- by Andy Cornish

Greek island holidays may cost more next year if plans go ahead to double the VAT tax rates on hotel rooms as Greece tries desperately to pay off its international debts.

The possibility has triggered howls of protest from the Greek Islands tourism sector and even prompted calls for the Greek prime minister to intervene.

The chief of the influential Association of Greek Tourism Enterprises (SETE), Andreas Andreadis, has dubbed the VAT increase "suicidal" and President Giorgos Tsakiris, of the Hellenic Chamber of Hotels (HCH) has urged Prime Minister Antonis Samaras to personally intervene to prevent the proposed VAT rate increase.

The proposals is to double the VAT rate for hotels from the current 6.5% to 13% and bring it back into line with average VAT levels across Greece.

Not everyone is against the move. The head of the National Confederation of Hellenic Commerce, Vassilis Korkidis, said that raising the VAT for hotels to 13% would bring hotel owners in line with the rest of Greece and "right the wrong committed in 2011 in regards to all-inclusive hotels" when VAT rates were halved to help promote tourism.

The move certainly paid off with Greece enjoying record tourist arrivals for the last three years and more than 20 million holiday visitors expected by the end of 2014.

Supporters of a tax hike argue that it is time that the Greek government got the benefit from the increase in tourism, especially with the economy in such dire straits.

But Greek hotel owners warn they have already completed deals and signed contracts with travel companies for the 2015 season and that the low tax rates help them stay even more competitive in the summer beach holiday market.

Hotel Owners Association spokesman Pelion Agioi Saranta has urged the government to not take them back to the "dark days" when tourism rates in Greece were falling.

Greek holiday tourists reach record levels

He added: "We have already agreed on prices and signed contracts for 2015, essentially with no price increases over this year, thus maintaining highly competitive packages for Greece. In the case of a VAT hike, we will be forced to renegotiate with doubtful results and certainly many cancellations."

According to latest SETEforecasts, the total number of tourists visiting Greece for a holiday break in 2014 is expected to reach 23 million, while Greek airports have handed 14 million tourists from abroad so far this year, a rise of 15% on 2013.

Critics of the tax hike argue that the move would be destructive and harmful for both tourism and Greece. The Greek Tourism Confederation (SETE) estimates that the increased prices resulting from a VAT will will cost 2.6 million in visitors and €1.6 billion in lost tourist revenue plus the loss of 30,000 jobs.

The Hellenic Hotel Federation warns that hotel enterprises will be forced to pass the extra cost to their holiday guests with the biggest effects felt over the next two years, not only for hotels and apartments but also for the national economy
Federation president Yiannis Retsos warned: "The VAT increase will suddenly raise the price of the average travel package for Greece by 5% at a time when many bookings are being made and prices have been agreed with tour operators through contracts."

"Therefore, the competitiveness of our tourism will receive a heavy blow during the most critical period, while any hopes of a recovery in domestic tourism will be wiped out."

The General Panhellenic Federation of Tourism Enterprises (GEPOET) has dismissed the proposed VAT hike as "totally absurd" and warns that the move will hit holiday package tours that include overnight stays, transfers, tours and visits to archaeological sites and museums.

And the Hellenic Association of Airline Representatives (SAAE) warned that it would be a "setback to the efforts made by all tourism professionals and have devastating consequences for the Greek economy as a whole."

Hotel VAT hike could help pay off Greek debts

Despite all the protest the Greek government is in a difficult position. The meeting of EU finance ministers later this month is crucial for Greece's bailout program.

Although there is praise for Greek austerity measures and tight budget controls, international creditors point to a fiscal gap in the 2015 budget. Doubling the VAT on hotels could help close that gap and give Greece more breathing space to pay off its debts.

With tourism in Greece enjoying a spectacular boom it may not seem unreasonable for the tourism sector to pay its fair share of taxes along with the rest of the country, but ministers will not want to kill a goose that is laying so many golden eggs.

If the VAT hike does get the go-ahead it could add at least 5% to the holiday bill next year and even more afterwards as hotel owners pass on the extra costs.

Who pays what VAT on Greek island holidays is a complicated business. Some island groups enjoy also lower VAT rates than others which has led to a wide variation in hotel room prices for different islands.

Hotel associations on some islands have underlined the unfairness over the special tax status of some Greek islands. They have called for an end to different VAT rates for different island groups.

A spokesman for the Crete Hotel Association said: "It is unacceptable that a hotel on the Aegean islands such as Rhodes, Kos and Mykonos pays an almost 26% lower VAT rate than a hotel on Crete This differentiation has led to unfair competition and also acts as a barrier to tourism investment in Crete."