The Finance Ministry presented its budget proposal
on Tuesday. Tourist industry officials are blasting the decision to impose a value added tax of 18% on incoming tourism services – mainly hotels, car rentals and other accommodation services.
There is no argument over the fact that in some parts of the world, including in advanced Western tourist countries which are members of the OECD organization, tourists pay different taxes, starting with full VAT for accommodation services, through reduced differential VAT for tourists or reduced differential VAT for all service receivers, without a clear distinction between a tourist or a local citizen.
Many tourist cities impose a tax on tourist hotel stays, which is collected directly from the visitors for their stays in the city's hotels. Such a tax exists in Paris and Rome, and will be introduced in Berlin and many other cities in the world this summer.
The advantage of this tax is that part of the money collected by the municipal authority is used to support the municipal tourism infrastructures. In Israel
we are witnessing quite a peculiar and unique situation. I'll provide several examples.
Out of some 3.5 million visitors in 2012, about a million visitors do not use hotels. Many of them have vacation apartments they bought here. They will essentially be exempt from the VAT imposed on those tourists who do stay in hotels.
I think you'll agree with me that this situation is absurd: That same tourist who has an apartment in Tel Aviv's Akirov Towers or in David's Village in Jerusalem's Mamilla neighborhood, will not pay for his stay in Israel, while the pilgrim from Portugal, who visits the Holy Land once in a lifetime, collecting euro by euro, will pay 18% VAT for a €1,000 ($1,300) tourist package, which already includes the tax-free flight component.
A further absurdity is that hotels in the Palestinian Authority – in Bethlehem, Jericho and Ramallah – will not pay VAT. As a result the price difference between a room at the Intercontinental in Bethlehem or the Mövenpick Hotel in Ramallah and hotels in Israel will grow. Naturally, travel agents will send their pilgrims there and not here – the tourist will tour Jerusalem and the Dead Sea, but will sleep in Bethlehem and Jericho.
Vacation apartments rented to tourists on a daily or weekly basis are a means for tourist accommodation. Who will ensure that it will not spill into that area, and who will enforce VAT payments on tourists staying in those apartments?
The Finance Ministry is interested in applying the payments as of June 1. How can we violate contracts with tourism wholesalers abroad and charge them for customers who have already paid? What about Expedia, Hotels.com, Booking.com?
There is quite a difficult legal issue here, and it's unclear whether the matter has been examined to the full degree. If lawsuits pour in from tourism suppliers abroad over the increase in the prices of services – who will they sue? The hotels or the State?
What about the workers? Will they not be the ones forced to "pay" the price for the rise in hotel rates in Israel? Won't hotels and tourism suppliers cut their employees' salaries as a way of absorbing part of the VAT charge, or alternatively reduce their manpower quota?
There is one positive aspect in these austerity measures: The Treasury is suggesting uniting the Tourism Ministry's representative offices abroad and including them in some of the cases within the Foreign Ministry system.
Why not take it one step forward and set up a tourism marketing authority like they have in Germany or Britain? It's an authority co-managed by the State and the tourism industry, which acts like a company with a board of directors and operates like a business organization. This organization will select the best professionals and put them in charge of marketing the tourism product. The State, together with the different tourism officials, will direct funds to this organization.
According to the budget proposal, "The costs of the offices abroad (administration, wages and security) stood in 2012 at NIS 32 million ($9 million). These are very high costs in proportion to the basic budget allotted to all the aforementioned marketing activities (about 34% of the budget)."
Why should the taxpayer finance the maintenance of tourism offices and the representatives and their family members abroad? The tuition fee in an international school in which the representatives' children study in many cases costs tens of thousands of dollars a year per child. Wouldn't it be wiser to choose local representatives who speak the local language, train them and hire them as company workers rather than as government employees? Not to mention the maintenance of homes, cars, office rent and security expenses.
Will American, British or German marketing people with years of experience not do an as good job as a representative who completed a Tourism Ministry cadets course one or two years ago?
All I'm trying to say is: Let's look into changing the model and launching a reform, and instead of Tourism Ministry workers who move from one country to another every few years, hand the marketing abroad to professionals.
A crisis is a good time to change our ways and outlook. As members of the tourist industry, we must tell the captains that we understand the situation, we don’t agree with it, but we'll naturally be forced to execute the government's decisions.
Nevertheless, we demand that the masters contribute their share in the effort and work together with tourist industry members to prevent any further damage to this important industry.
The writer is the CEO of Vision Hospitality and Travel