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Bulgaria's Tour Operators Against VAT Vexation
Sofia Echo Com, Ivan Vatahov, 06.03.2006
Bulgarian tour operators have launched a campaign against any possible vexation that value added tax (VAT) is or could be causing them. Foreign companies siphon millions of euro from Bulgaria, refunding the VAT they paid in this country on the price of hotel accommodations, participants in the international tourist exchange Vakantsia 2006 (Vacation) in Sofia said on February 23. According to Lyubomir Pankovski of the Bulgarian Association of Tourist Agencies (BATA), who spoke on behalf of other members of the association, Bulgaria set the precedent in this field, as legal entities around the world typically do not allow VAT refunds for this type of service. Pankovsi believes that this represents a siphoning of an enormous national resource and is a form of discrimination towards local sector players. Under legislation introduced in early 2005, foreign tour operators are allowed to refund VAT paid in Bulgaria. Before that, only individuals were entitled to VAT refunds on goods they purchased in this country. A check by The Sofia Echo, however, shows that Bulgaria does not set the precedent in the VAT refund policy towards businesses, and at least two European Union (EU) member countries also allow it. By a decision of Germany’s supreme court, travel expenses effected after December 31 1999 can be reclaimed if the correct name of the traveller and applicant company is shown on the receipt or invoice. The German Bundesamt fur Finanzen (ministry of finance) has become increasingly strict on the documentation requirements for a refund claim, and tends to apply the most stringent interpretation of the rules when reviewing a claim. The refund, however, is completely legal. The Italian government also recently issued a procedure under which travel agencies may reclaim the Italian VAT paid for hotel accommodation and transportation costs they incur when they purchase them directly from the supplier. This new procedure is primarily directed at tour operators and agencies that organise large travel groups; however, any travel agency may apply for a refund of the Italian VAT. As The Sofia Echo reported on February 24, Bulgarian tour operators are facing a tougher challenge with the possible introduction of the 20 per cent VAT on tourist services in Bulgaria. Currently, Bulgaria charges only seven per cent VAT on tourist services. However, in line with its commitments to the EU, the country will have to raise the rate to 20 per cent, which is the uniform rate for all goods and services in Bulgaria. This tax burden, according to experts, will make it hard for the country to counter the competitive pressure of other markets, such as Greece, Spain and Turkey. Bulgaria’s direct competitors for the highest VAT charged on tourist services in the EU currently can be found in Austria and Italy, but even these in countries it is much lower, at only 10 per cent. Denmark charges the highest rate for hotel accommodations at 25 per cent, followed by Slovakia with 19 per cent and the UK with 17.5 per cent. The new tax burden for Bulgarian tourism is envisaged in the new VAT Bill, which has been prepared by the Finance Ministry, and has already been criticised on many other points and from other business representatives. If passed by Parliament, it will enter into force in 2007. An increase to 20 per cent in the VAT rate for hotels, for example, will increase prices by more than 13 per cent, which will discourage customers. About 80 per cent of foreign visitors come to Bulgaria through foreign tour operators and their packages of hotel, food and other services currently include seven per cent VAT. If prices increase by 13 per cent next season, hotels will face quite serious problems. Their sales will slump or expenses will surge. In both cases, hotels may be forced to stop operating, as they will be unable to cover their costs and repay investment. Bulgarian tour operators are now considering an idea of switching to offshore registration in order to avoid a 20 percent VAT rate, participants in Vakantsia 2006 said.
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