The Adrian Loveridge Column – Call to Remove VAT On Accommodation and Breakfast to Spur Growth
The Government of Argentina has taken the bold move to remove, with immediate effect, the 21 per cent VAT (value added tax) on accommodation and breakfast, where included in a package element on hotel stays for foreign tourists. There are of course conditions. To qualify, payment must be made by a foreign credit or debit card and the name, address, residency and passport or ID number supplied. If bookings are made by travel agencies or tour operators, they will need to provide this information on behalf of their clients.
According to their Tourism Minister, Gustovo Santos, it is estimated that it will cost the administration around US$38 million annually, but the projected additional 95,000 visitors that it could attract will generate around US$70 million.
He added that ‘the measure emphasised the importance of tourism to the Argentine economy and the need for a simple, direct and automatic mechanism to reimburse VAT to foreign tourists to improve the competitiveness of the Argentine tourism industry’.
Already the decision has had an almost immediate effect of increasing airlift into Argentina with a new code sharing agreement signed between the national carrier Aerolineas Argentinas and Air Europe making new routes a reality and opening up greater parts of Europe.
Dynamic fast growing low cost carrier, Norwegian Air has formed a new holding company Norwegian Air Argentina S.A with plans to position between six and ten B737-800 and B737 Max 8 aircraft in three cities including Buenos Aires, Cordoba and possibly Mendoza. The idea is to feed into the long haul routes with a Gatwick/Buenos Aires service planned for a November 2017 start-up.
The Max 8 variant which Norwegian will operate has a range of 3,515 nautical miles giving almost infinite two city connecting possibilities. The airline has learnt from their Gatwick transatlantic flights that around 20 – 30 per cent of passengers have transferred there, mainly from Scandinavia, so they clearly are looking at the bolster potential.
The anticipated increased number of visitors to Argentina will also drive additional hotel and accommodation plant construction, restaurant patronage, car rental and all the other requirements they will bring including generating thousands of new jobs.
Whether our Government is brave and bold enough to follow the Argentina example remains to be seen, helping offset our reputation as a high cost destination and grow new markets, but a 21 per cent decrease in the accommodation portion cost of a holiday certainly sounds compelling, especially if it can be offset by a greater spend and occupancy overall.
Currently many of our registered hotels enjoy a reduced room rate of VAT at 7.5 per cent, but there has been increased pressure by the non-traditional accommodation sector including what many consider the hundreds and possibly thousands of alternative lodging options like those offered by Airbnb and alike, to garner equal benefit.
I can understand their point, but with privilege comes responsibility and perhaps this presents an opportunity of embracing companies like Airbnb and their vast resources, to finally have a minimum standard of licensing for every accommodation provider. The trade-off could be modelled on the proposal made by Airbnb last month with Costa Rica, where the sharing economy platform has offered to collect sales taxes on behalf of Government from the stated 5,500 Airbnb hosts it represents in that country ‘according to company data’.