FIHR: Turnover tax would be a catastrophe for the Romanian hotel industry
The Federation of the Hotel Industry in Romania, FIHR, stated that the transition to turnover taxation would be a catastrophe for the hotel industry and considers this idea an inconsistent and economically unsustainable formula that blocks investments, leads to a decrease in service quality, and encourages the underground economy.
If in 2016 tourism businesses were taxed on the profit obtained from economic activity, in 2017 they switched to a form of specific tax (which still does not have all its norms clarified for application), and for 2018, a switch to turnover taxation is being discussed—radical, short-term changes that hotel industry representatives consider harmful to tourism.
Hoteliers believe that through this measure, tourism becomes totally unattractive for investors, who will migrate to other countries where such investments are seriously stimulated.
Călin Ile, president of FIHR, estimates that service quality in hotels will suffer; the amounts allocated by owners to be reinvested in renovations, equipment purchases, technology, etc., will decrease significantly because they will no longer be fiscally incentivized to do so.
The head of the hotel federation also says that the turnover tax form, combined with the overtaxation of labor, will push some owners to take the risk of returning to the gray economy, just as when VAT was very high.
At the same time, the president of the National Association of Travel Agencies, ANAT, Alin Burcea, maintains that in the best-case scenario, with a 1% tax, more than 2,000 of the 2,200 travel agencies in Romania will become unprofitable and will be closed. The profitability rate of an agency, namely the profit remaining after expenses have been covered, is 1-1.2% of the total turnover.
Only a few large agencies will survive, under 10%, which have a profitability rate of 1.7-1.8%, but even these will never have money for development, Alin Burcea specified.
In his opinion, not only this measure from the new government program will seriously affect tourism, but also the increase in the minimum wage. “The minimum wage of 2,000 RON in 2018 is a disaster for tourism because it is very high. It will be a very serious situation,” added the head of ANAT.
Source: Profit
Frequently Asked Questions
Why does FIHR oppose the turnover tax?
FIHR believes this tax blocks investment, reduces service quality, and encourages the underground economy due to its economic unsustainability.
What is the estimated impact on travel agencies?
According to ANAT, a 1% turnover tax would make over 2,000 out of 2,200 travel agencies unprofitable, potentially leading to their closure.
What other government measures concern the tourism industry?
In addition to taxation, the increase of the minimum wage to 2,000 RON is viewed as a major threat to the sector’s profitability.