Tourism sector welcomes VAT cut

RIGA - Latvia’s ruling coalition parties agreed on March 15 that the value-added tax rate for the tourism sector would be reduced from 21 percent to 10 percent, reports news agency LETA. Saeima will now review the proposed amendment in its first reading.
The People’s Party succeeded, with the help of the opposition, in gaining support from the Saeima’s Budget and Finance (Taxation) Committee for forwarding their amendment to the law ‘On Value Added Tax’ (VAT) for review in the full Saeima. The amendment foresees the introduction of a reduced VAT rate for the tourism sector. The amendments provide for reduced VAT rates for hotels and tourist accommodations.

Prime Minister Valdis Dombrovskis (New Era) had said that politicians should be aware that such a rate reduction may result in a ‘snowball’ effect and that other industry sectors would soon begin demanding similar treatment. The politicians say that they have agreed to comply with strict discipline and will make an exception only for the tourism industry.
Economy Minister Artis Kampars (New Era) said that the VAT reduction supports the tourism industry. However, he had called for a delay in deciding the issue, noting that Latvia needed to discuss this with the international lenders before proceeding.
During a meeting between international lenders and opposition parties at Saeima on March 9, the lenders did indeed point out that reducing VAT in separate industries would lead to similar demands from representatives of other sectors, said Saeima Deputy Oskars Kastens (Latvia’s First Party/Latvia’s Way).

During the discussions, the lenders reminded the participants of the memorandum signed by Latvian politicians, concerning increasing the mentioned VAT rates. “Today’s discussions were very correct and they praised Latvia for its achievements,” said Kastens.

The lenders are concerned that Latvian politicians hold to their commitments in carrying through on cutting the budget deficit and restructuring the economy as conditions to continue receiving support funding. Both sides agreed to meet more frequently in the future. The next time the two sides could meet could already be in May.
Changes in the VAT rate were proposed in order to increase the tourism sector’s competitiveness in foreign markets, as well as promote tourism development in Latvian, say the sponsors. The reduced VAT rate will reduce prices for hotel accommodation, which in turn will contribute to increasing exports, they add.

Finance Ministry Communications Division Deputy Chief Alex Jarockis has reported that, according to the Ministry’s calculations, this VAT reduction will result in an 8 million lat (11.4 million euros) VAT revenue decrease.