Tourist Association says VAT will reduce tourism 14%

Tax would lead to 7,000 jobs lost, says Landau.

Lapid at faction meeting 370 (photo credit: Marc Israel Sellem/The Jerusalem Post)
Lapid at faction meeting 370
(photo credit: Marc Israel Sellem/The Jerusalem Post)
Finance Minister Yair Lapid’s decision to eliminate the exemption on value added tax for tourists would lead to a 14 percent reduction in tourism, the country’s main tourism associations said Thursday, claiming that the Treasury relied on faulty data in their calculations surrounding the decision.
“We feel that the Finance Ministry made an incorrect decision,” said Michael Federman, chairman of the Israel Incoming Tour Operators Association, and of the Dan Hotels board, adding that making tourists pay an 18% tax would lead to an 8-14% drop in tourism, some 250,000 to 300,000 people.
“What he thinks will lead to an increase of income in the nation, we think will lead to a loss,” he said.
The association filed an injunction with the High Court of Justice to prevent the imposition of the tax.
Tourism Minister Uzi Landau said that the tax would lead to 7,000 people losing their jobs, at a loss of NIS 1.7 billion to the economy, according to Israel Radio.
Ami Federman, the president of the Hotel Association (and cousin to Michael), accused the Finance Ministry of relying on an outdated Bank of Israel report “based on false assumptions’ that was no longer relevant.
The ministry, however, told The Jerusalem Post that the Bank of Israel document cited in their report was from 2013, and had the most updated and accurate figures available.
According to the budget proposal, cancelling the VAT exemption for tourists will bring in NIS 500 million and could allow the Treasury to eventually lower other taxes.
Citing a Bank of Israel study, the draft budget said that most of the expenses tourists face in Israel are not exempt from VAT to begin with, and that “the overall price increase for the average tourist, including airfare, will be 3.1% alone.”
It also said that the recent passage of the Open Skies reform will bring down airfare costs, and that hotels and service providers would absorb some of the VAT.
As a result, only 6.5% of tourists will cancel trips.
Because the Finance Ministry expected long-run growth in tourism, it said that even if there was a greater effect on tourism for one or two years, the market would stabilize thereafter.
By Ami Federman’s calculations, however, the tax would make the tourism sector suffer a loss of 60,000 work days. The industry, he said, was already facing a tough time because of the strong shekel.
“It’s already 20% more expensive for Europeans, for British tourists,” he said, adding that even European Union countries that impose VAT on tourists give them a lower rate. In Germany, he said, it was 7% for tourists instead of 19% for everyone else. That level, he said, would be acceptable for Israel.
Ami Etgar, executive director of the IITOA stressed that the loss of tourists affected not only hotels, but all associated industries that rely on tourists: restaurants, museums, national parks and bus lines. “Who are all these people if not the middle class?” Etgar asked.
The quick imposition of the tax is also a problem, he noted. The tour groups organizing the Maccabiah Games in July “have to go and ask everyone for hundreds of dollars more” to cover the new costs.
Protesters from the IITOA launched a five-day protest vigil outside Lapid’s house in Ramat Aviv Gimmel in north Tel Aviv on Thursday, demonstrating against the cancellation of the tourist VAT exemption.
The protesters, who numbered around a dozen by mid-afternoon, said they will take turns protesting in shifts outside the house until Monday.
Deputy head of the IITOA Oded Gorefman said, “Today Israel is already a very expensive destination and not seen as the safest one either. All tourists have a budget which they can use to travel to other countries and if it goes up by 18% people will cancel,” he said.
Gorefman added that the move will also deter investors from pouring capital into the Israeli tourism industry.