A restaurateur from Split comments on latest tax changes.
If government’s tax reform proposals are adopted in Parliament, Croatia could soon become a country with one of the highest taxes on restaurant and catering services, reports Index.hr on October 30, 2016.
The government has proposed to abolish the reduced VAT rate on restaurant and catering services, which will be increased to 25 percent, while accommodation services will remain at 13 percent. Tourist countries, such as France, Spain, Italy or Austria, have a reduced rate of VAT of 10 percent.
Zoran Pejović, a well-known restaurateur with extensive international experience explained possible consequences. He is a co-owner of a top Split restaurant Paradigma, as well as Paradox Wine & Cheese Bar.
Pejović says that the issue of taxes on tourism services is an extremely complex issue which needs to be accessed realistically. “These are extremely complex issues which require high-quality discussion without the demagoguery about the so-called social equality that accompanies this tax reform, but which is totally unfounded when it comes to tourism and hospitality. Reduced VAT rate on services in the tourism and hospitality industry exists in almost all EU countries. The reasons are numerous. Among other things, the volatility of the industry itself, the constant adjustment of prices throughout the season, especially the accommodation prices, the multiplicative factor which tourism and hospitality have on other sectors of economy, with special emphasis on food and wine production, and also because of ever lower margins in the industry”, says Pejović.
“However, there is another important reason, especially in the Mediterranean countries, and it refers to the export character of tourism and hospitality industries. Consumption of foreign tourists in a country is considered as export, although it is not stated as such in the overall balance of payments. We are selling ‘tourist experience’ in our country. This tourist experience mainly includes accommodation and restaurant services. Tourists use money from their countries to pay for this experience. Therefore, tourism is an export industry, but since there is no crossing of goods and services across borders, tourism is often described as indirect export. Exports in most countries are not covered by value added tax. While some others export sectors, such as consulting, insurance and financial services, have a zero rate of VAT, that is not the case with tourism and services in the tourism industry”, adds Pejović.
“This anomaly is mainly regulated by the application of a reduced rate of VAT on services in tourism and hospitality industry. Given the fact that foreign tourists in Croatia account for over 92 percent of overnight stays, we can assume that their share in restaurant consumption is similar, which also makes it largely export in character”, explains Pejović.
In addition, tourism and associated catering and restaurant services, unlike some other activities, have a pronounced seasonality – full season lasts just several months. Besides, restaurateurs are burdened with a number of non-tax levies. Pejović believes that VAT increase could have dire consequences for restaurateurs – there will be a decline in quality, which will affect the whole tourism industry.
“I am a little sad that many commentators look at the sector through the prism of those restaurateurs who use the still unregulated situation in the market. It is true that there are still examples of people who use ingredients of dubious quality, have excessively high margins, and run poor or unprofessional businesses. However, I sincerely believe that the market is in a slight upward trend as far as quality is concerned and that we could see the effects of that rise in a few years. But, this decision will have a completely opposite effect. Quality restaurants will become unsustainable and their place will inevitably be taken over by restaurants that will work only during high season, with low quality ingredients and relatively high margins. High-quality restaurants will remain only a unfulfilled dream of true lover of gastronomy, which will ultimately have a detrimental effect on the whole tourism industry”, concludes Pejović.
