Plan for VAT on tourism causes shivers

Levy on hotel stays, car rentals could repel 290,000 tourists, ministry says.

Stas Misezhnikov 88 248 (photo credit: Ariel Jerozolimski)
Stas Misezhnikov 88 248
(photo credit: Ariel Jerozolimski)
Imposing a value added tax on tourism services will lead to a 12 percent drop in incoming tourism and 11,600 workers will lose their jobs, the Tourism Ministry said Thursday. "The imposition of VAT on incoming tourism services is a foolish move that will result in thousands of people losing their jobs," Tourism Minister Stas Meseznikov (Israel Beiteinu) said. "It is another blow for the tourism industry in Israel, which is already struggling due to the global economic crisis." Israel Beiteinu threatened to vote against the 2009-2010 draft budget, which passed its first reading on Wednesday, unless the proposed VAT levy is removed from the Economic Arrangements Bill. Incoming tourists currently are exempted from paying VAT on tourism services such as hotel stays and car rentals. The additional VAT would increase the price of holiday packages by an estimated 16.5%, result in 290,000 fewer tourists (a drop of 12%) and lead to 11,600 workers losing their jobs, the Tourism Ministry said is a statement. Proponents of imposing VAT on tourism services say it would generate NIS 500 million for the state coffers. In response, the Tourism Ministry said the revenues generated would be offset by having fewer incoming tourists who buy taxable products and increased unemployment benefits for laid-off tourism workers. "The proposed VAT levy could also endanger the image of Israel as an attractive tourism destination," the ministry said. "Since the proposal has been made public, we have had many requests from travel agents and tourism marketing representatives we work with who announced that they would stop to market Israel if there is a price hike on holiday package deals to Israel." The tourism industry is a potential growth engine for the economy, since for every 100,000 incoming tourists, about 4,000 jobs could be created, contributing $210m. to gross national product, the ministry said. "The VAT levy is threatening the tourism potential and the target of bringing five million tourists to Israel by 2015," the ministry said. "Due to the global economic crisis, the tourism industry in Israel is competing fiercely with other countries and cheaper destinations." The Tourism Ministry expects incoming tourism in 2009 to fall by 20% year-on-year due to the global economic crisis. In addition, the industry is struggling to maintain its competitive position because of high costs for energy, water and food and geopolitical risks. International passenger traffic fell 15% in May compared with the same month last year, according to the Israel Airports Authority.