VAT proposals to hurt shipping and tourism

Two of the Greek economy’s most competitive sectors, shipping and tourism, are set to suffer a big blow from proposals made by the country’s creditors that provide for an increase in taxation.

The creditors are asking for an increase in the tax on ships’ capacity that Greece-based shipmanagement companies pay and the gradual abolition of the provisions of the legislative framework according to which these firms operate.

That is a move which threatens to inflict a direct blow on a sector that contributes about 7 percent of the country’s gross domestic product, 192,000 jobs and foreign currency amounting to some 13.2 billion euros per year, according to data from the Foundation for Economic and Industrial Research, the Bank of Greece and the Boston Consulting Group.

The eurozone and the International Monetary Fund are also proposing an increase in the value-added tax rate on hotel accommodation from 6.5 to 23 percent while demanding a VAT hike on food service from 13 to 23 percent, to be introduced as early as July 1.

“If that is implemented, the result will be destructive, putting our tourism product completely out of competition, given that the average VAT rate at rival destinations ranges between 8 and 10 percent. For the umpteenth time, it has to be made clear that the decision of each visitor is doubtlessly affected by the cost and his choice is fully determined by that,” was the reaction of the Association of Hellenic Tourism Enterprises (SETE).

It added that such a tax hike “would no doubt swing the flow of millions of tourists to other rival and neighboring countries, depriving Greece of essential revenues, several percentage points of the already battered GDP and thousands of jobs.”

The data from tourism markets that are in direct competition with Greece’s show that although there are different rates for accommodation and food service depending on the market, the package – i.e. the sum of the VAT on the two commodities that visitors eventually face – ranges from 8 percent in Turkey to 10.3 percent in Portugal. In Greece it currently stands at 8.1 percent and this is now threatened with nearly tripling to 23 percent.

Tourism contributes directly to 9 percent of Greece’s GDP, according to a study by SETE. In 2014 it posted an increase of 11.3 percent, or 1.8 billion euros, reaching 17 billion euros. Each euro of tourism activity is then seen to generate another 1.20 to 1.65 euros of additional economic activity. Consequently, for 1 euro of tourism activity, Greece’s GDP grows by 2.20 to 2.65 euros.

Notably, three of the country’s island regions, Crete, the Southern Aegean and the Ionian, owe at least 50 percent of their GDP to tourism.