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Greece: is tourism targeted?

While the indicators of Greek tourism are in full rebound and the sector is one of the few economic lungs of the country, the recent proposals of the Greek government to face pressure from the country's creditors could jeopardize growth. The Prime Minister plans to significantly increase the VAT rate applied to hospitality industries.

Greek Prime Minister Alexis Tsipras attended yesterday a meeting with the President of the European Commission Jean-Claude Juncker, Head of the ECB Mario Draghi and Head of the IMF Christine Lagarde, to review a series of measures proposed on Monday. To avoid default in payment and an exit from the euro area, the Greek Head of State had submitted a reform program to its creditors, including in particular the return to a normal VAT rate of 23% and the limitation of the scope of the reduced rates, which include among others the Aegean islands.

Deemed insufficient by the country's creditors, the proposed measures would directly impact the Greek tourism industry, which has so far an advantageous taxation. The rates of VAT applied to hotels and catering indeed amount respectively to 6.5% and 13% on the continent and to 5% and 9% in the islands. Yet, the government plans to raise them from 6.5% to 13% for hotels and from 13% to 23% for catering, eliminating the preferential rates enjoyed by the islands.

Such an increase in the sector in the VAT rate could result in a significant increase in prices charged to tourists, thus jeopardizing one of the few economic sectors that are doing well in Greece today. Tourism currently weighs nearly 20% of GDP. It is true that the destination has strong price attractiveness from foreign customers, which allowed it to reach new attendance records in 2014. The country welcomed over 23 million visitors throughout the year, 15% more than in 2013, according to data from the Greek Tourism Confederation (SETE). Excluding cruise passengers, this figure amounts to 21.5 million tourists, representing a 20% increase over the previous year. They generated some 14 billion euros in direct revenue to the Greek State, part of which has been spent in hotels. In Athens for example, revenue per available room (RevPAR) of hoteliers rebounded by 25.9% over the full year 2014, thanks to a 9.8 points growth in occupancy and a 6.5% increase in the average price (according to data released by MKG Hospitality).

2015 was announced as a promising year for Greek tourism. During the first quarter, tourism revenues have indeed increased by 12.8% to reach 532 million euros, when foreign attendance was up 45.6% over Q1 2014, with 1.7 million tourists welcomed. The hotel industry is also in great shape, for instance in the capital where the revenue per available room increased by 13% between January and May, driven by a 4 points increase in occupancy and a 5.5% one in the average price (according to data released by MKG Hospitality).

At the dawn of summer, the sector's growth could be penalized by the introduction of such measures. An increase in VAT applied to the sector might well question the growth forecast announced by the SETE, which was counting on the arrival of 24 million international tourists in 2021 for revenues between 16 and 18 billion euros.

Also read:

  • Greece: tourism as the engine of the economic recovery
  • Greece: tourism made a comeback in 2013
  • 2014, a record year for Greek tourism

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