COLUMN: Tax stimulation of tourism activity

Namik Colakovic

The draft amendments to the VAT Law indicate that the position of the tourism sector in Bosnia and Herzegovina will not change, since the introduction of a differentiated rate is not foreseen, but it continues to persist at a single rate. It is astonishing that none of the structures that participated in the creation of new legal solutions considered that the tourism sphere should be strengthened and that this approach would lead BH tourist workers into an unequal position.

The facts confirmed that the application of the unique VAT rate can achieve fiscal and economic goals, and it is also easier to apply. However, the experience of other countries shows that through introduction of a higher number of rates, these goals can also be met, but the range of objectives can be extended to social goals and, most importantly, ensure the competitiveness of the sector. Analyzes have shown that application of a privileged VAT rate enhances the competitiveness of tourism and influences the increase in international tourist arrivals and increase in tourism revenues, but it is also indicative that the level of VAT rate has become one of the key factors of global competitiveness.

In line with this understanding, the EU Council has adopted a Directive by which Member States can use the possibility of lowering the VAT rate for certain activities as a lever to enhance the competitiveness of these activities. In the European Union’s legislative framework, directives define the goal that all Member States need to accomplish, each of them independently deciding on how to achieve that goal. Consequently, differentiated VAT rates have been introduced in all EU member states. Comparing the current VAT rates for hotels in the EU countries with the current VAT rate in Bosnia and Herzegovina, it is evident that 25 EU member states have a significantly lower VAT rate, ranging from 3 to 15 percent. It should be noted that in 17 countries the rate is up to 10 percent. The privileged VAT rates are also applied in the EFTA countries, ranging from 3.8 to 11 percent, and in Turkey the hotel’s VAT rate for hotels is 8 percent.

Encouraging information on the increased frequency of tourist arrivals in Bosnia and Herzegovina, or continuation of the growth trend that has been going on for several years, obliges tourism to finally begin to be seen through links with other parts of the economic system. Especially important are the multiplier effects that tourism produces, so according to research, one euro spent in tourism generates about 1.16 percent of additional demand in related activities. This indicates that all activities and measures undertaken by the government in direction of providing support to this sector can have a positive impact on the overall economy, but also on the realization of social goals, as these activities ensure employment of the young population. Conversely, increasing tax rates or keeping the status quo unresponsive to the competition challenges can also negatively affect tourism and all related activities.

All this shows that the reduction of VAT rates in the tourism sector is a product of the views of the governments of European countries on tourism as a highly competitive activity, which competes in the international market on which different conditions of competitiveness of business entities are established. It is the governments of these countries and decided that economic operators, whose main business is related to tourism or more precisely for accommodation and catering, tax policy provide internationally competitive business conditions.

The spectrum of available tourist attractions, favorable geostrategic position and incentive fiscal framework are a real opportunity for tourist repositioning of Bosnia and Herzegovina. The commitment to EU integration implies also the correction of relations with tourism, and the aforementioned EU Council Directive prescribes that differentiated rates of VAT can be applied to the delivery of goods or services as defined by Directive, which lists food and accommodation offered by hotels or similar institutions, together with a holiday accommodation and rental of camping grounds and trailers.

Therefore, several questions can be asked, and tourism workers are waiting for answers:

-Why did local and foreign experts, who worked on the preparation of a new legal solution, not taken as a reference mentioned Directive?

– Why is current VAT rate still persisting in the area of ​​accommodation and catering, which places this segment of tourism in an unequal position and makes it uncompetitive in relation to almost all European countries?

– Why were not all the stakeholders louder?

-Why did the political structures not officially initiate introduction of a differentiated VAT rate, although they promised it in their election campaigns?

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