Itongadol.- Finance Minister Yair Lapid decision to eliminate the exemption on Value Added Tax for tourists would lead to a 14% reduction in tourism, the country’s main tourism associations said Thursday, claiming that the Finance Ministry relied on faulty data in their calculations surrounding the decision.
“We feel that the finance ministry made an incorrect decision,” said Michael Federman, Chairman of the Israel Incoming Tour Operators Association, and of the Dan Hotels board, adding that making tourists pay an 18% tax would lead to a 8-14% drop in tourism, between 250,000-300,000 people. “What he thinks will lead to an increase of income in the nation, we think will lead to a loss.”
The Association filed an injunction with the High Court of Justice to prevent the imposition of the tax.
Tourism Minister Uzi Landau said that the tax would lead to 7,000 people losing their jobs, at a loss of NIS 1.7b to the economy, according to Israel Radio.
Ami Federman, the president of the hotel association (and cousin to Michael), accused the Finance Ministry of relying on outdated Bank of Israel report “based on false assumptions’ that was no longer relevant.
The Finance Ministry, however, told the Post that the Bank of Israel document cited in their report was from 2013, and had the most updated and accurate figures available.
According to the budget proposal, cancelling the VAT exemption for tourists will bring in NIS 500 million and could allow the treasury to eventually lower other taxes. Citing a Bank of Israel study, the budget said, "most of the cost to tourists in Israel isn\’t for the cost of services exempt from VAT, the overall price increase for the average tourist, including airfare, will be 3.1% alone." It also said that the recent passage of the Open Skies reform would bring down airfare costs, and that hotels and service providers would absorb some of the VAT costs. As a result, only 6.5% of tourists would cancel trips as a result.
Because the Finance Ministry expected long-run a growth in tourism, it said that even if there were a greater effect on tourism for one or two years, the market would stabilize thereafter.
By Ami Federman’s calculations, however, the tax would make the tourism sector suffer a loss of 60,000 work days. The industry, he said, was already facing a tough time because of the strong shekel. “It’s already 20% more expensive for Europeans, for British tourists,” he said, adding that even EU countries that impose VAT on tourists give them a lower rate. In Germany, he said, it was 7% for tourists instead of 19% for everyone else. That level, he said, would be acceptable for Israel.
Ami Etgar, the executive director of Israel Incoming Tour Operators Association stressed that the loss of tourists affected not only hotels, but all the associated industries that rely on tourists: restaurants, museums, national parks, bus lines. “Who are all these people if not the middle class?” he asked.
The quick imposition of the tax is also a problem, he noted. The tour groups organizing the Maccabia games in July “have to go and ask everyone for hundreds more dollars” to cover the new costs.
Protesters from the Israel Incoming Tour Operators Association launched a five-day protest vigil outside Lapid\’s house in Ramat Aviv Gimmel in North Tel Aviv on Thursday, demonstrating against the cancellation of the tourist VAT exemption.
The protesters, who numbered around a dozen mid-afternoon on Thursday, said they will take turns protesting in shifts outside the house until Monday.
Deputy head of the Israel Incoming Tour Operators Association Oded Gorefman said that Israel is already a highly expensive destination for tourists, and if the price rises 18%, there\’s no reason to expect people won\’t decide to spend their vacations elsewhere.
“Today Israel is already a very expensive destination and not seen as the safest one either. All tourists have a budget which they can use to travel to other countries and if it goes up by 18% people will cancel.”
He added that the move will also deter investors from pouring capital into the Israeli tourism industry.