VAT Reduction Crucial to Tourism Industry, Says Tourism Chief
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The Prime Minister and the president of the Portuguese Tourism Confederation had a meeting today to discuss the reduction of the Value-Added Tax (VAT) in the tourism industry. The golf sector was the main focus of the discussions.
It must be noted that the golf sector has two main issues that continue to affect it. First, the length of time necessary to approve developments in the sector has been a thorn in the side of golf facilities developers. The economic crisis has intensified the issues, unfortunately.
Second, the increase in the VAT rate for golf-related businesses has adversely affected the sector. The reduction in the advertising budget for the promotion of Algarve as a premier golfing destination is an added issue to said tax increase.
Both entities are working toward the reduction of VAT in the golf sector such that the minimum rate remains. The rationale is that golf being one of Portugal’s most competitive sectors it must be permitted the minimum tax rate lest the Algarve tourism industry as a whole suffers the consequences.
This stand is apparently supported by the Centro Nacional de Informacion Geografica (CNIG), Portugal’s research agency from the central administration. According to the CNIG, the increase in VAT to the top rate will be detrimental to Portugal’s current market share in that 15% to 20% will be lost to Spain and Turkey, the country’s direct competitors in the golf industry.
But it is not just the golf sector that will be affected. Many 4-star and 5-star hotels that remain open during the golf season from autumn to winter will most likely close because of the downturn in the golf sector. Also, many low-cost transportation routes will relocate to other destinations for similar reasons.
The CNIG has even gone so far as to warn that Portugal may revert back to its status as solely a summer destination, not a year-round destination for golf and other activities.
The increased VAT rate does not only affect the golf sector, however. The VAT rate applicable for restaurants and hotels was also increased from the original 13% to 23%, which was implemented since January 2012. The increase was in line with the central government’s austerity measures as a response to the economic crisis.
The Algarve Socialist MP Miguel Freitas has also called on the central government for such a reduction. Furthermore, the political party has already presented the matter for appropriate parliamentary voting.
Freitas stated that reverting to the original 13% tax rate will be of great help to the restaurant industry, one of the mainstays of the Algarve Region’s economy. This way, an irreversible crisis in the short-term period can be averted.
Statistics show that, indeed, the increase in the VAT rate has had significant impact on the restaurant sector. According to data released by the Association of Hotels, Restaurants and Related Businesses in Portugal (AHRESP), an average of one restaurant per day was closing its business in the country while 52 insolvencies were recorded from January to February 2012.
AHRESP predicted that 20,000 businesses in the industry will also close. Subsequent losses in jobs will be as high as 47,000 from 2012 to 2013 due to the tax increase. AHRESP further attested that the 23% VAT rate neither serves the interests of the country nor its tourism industry.
The Portuguese central government has yet to indicate its plans in response to the clamor for VAT reductions for the tourism industry. Its State Budget for 2013 will be the barometer of the success – or failure, for that matter – of the talks between the state and the industry’s stakeholders. There’s hope, to be sure, but it remains to be seen whether the government listens to its people.
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