Hotels would get a big boost if their VAT rate was reduced

For hotel industry enterprises to create more jobs and implement investments that will improve the quality of service, they need a more favorable tax policy, Alpha Bank argues in its weekly financial bulletin.

The lender’s economists explain that the imposition of a higher value-added tax on hotels since 2015 (when the rate rose from 6 to 13 percent) in most of the country (excluding Leros, Lesvos, Kos, Samos and Chios which have been granted special VAT status) has damaged the sector’s competitiveness, although hotel enterprises have been forced to absorb most of the hikes themselves to compete with prices in Greece’s rival destinations.

Alpha’s analysts stress that lightening the tax load on hotel enterprises would also give them a better chance of wooing visitors considering a short-term residential rental instead, as offered through online platforms such as Airbnb and HomeAway. In addition, it would result in a decline in hotel service prices and tackle the issue of seasonality: Greek hotels wouldn’t open only during periods of high tourism traffic as costs would allow them to stay open for longer each year.

Hellenic Statistical Authority data show that 9,783 hotel units operated in Greece last year, against 8,899 in 2004, a 9.9 percent increase over 13 years. The number of rooms available rose to 414,127 in 2017 – a 17.7 percent increase compared to 351,891 in 2004 – while the number of available beds climbed 20.6 percent, from 668,271 in 2004 to 806,045 in 2017.

The Alpha Bank analysis notes that the increase in foreign tourism arrivals last year to over 30 million had a positive impact on hotel enterprises’ revenues, which according to ICAP researchers grew by more than 3 percent in 2017 compared to 2016. In the period from 2018 to 2020, ICAP projections point to an annual growth rate of 3.5 percent.

The report concludes that there is scope for an even greater rise in tourism arrivals and revenues, due to the country’s attractive tourism product and its geographical, cultural and historical advantages over its direct competitors, while hotel infrastructure has improved thanks to the increase of foreign hotel groups with a strong brand name.