Tourism Sector Opposed to New Taxes on Tax Plan

The National Chamber of Tourism (CANATUR) discussed the factors that would affect the Costa Rican tourism industry if the Tax Solidarity Project were to be ratified as proposed by the current administration of Laura Chinchilla.

In a statement, CANATUR explained the four points that might generate greater impact in the already battered industry.

"The project’s official approach assumes that the final consumer, (domestic and foreign tourists, in our case) would be willing to accept the increase of price implied in taxing the tourism sector with value-added tax (VAT), which is not true.

In an industry as competitive and sensitive to the effect of the economic recession of 2008, the increases are highly risky.

Providers, especially those at the end of the value chain, will have to absorb the cost of the increase on account of this regard," said Juan Carlos Ramos, President of CANATUR in the statement.

CANATUR’s first argument against the new taxes is that they will generate new surcharges on fees negotiated with wholesalers."Tourism businesses negotiate their rates two years in advance.

Entrepreneurs have established contracts with international wholesale agencies that provide for the compliance with the rates for the years 2013-2014.

By applying the VAT, tourism businesses would need to take these figures as a loss, because they cannot incorporate this item at the price negotiated in within at least two years," he said.

CANATUR also shows that the charges would cause Costa Rica to lose its competitiveness as a tourist destination."

Tourism is a sensitive industry and Costa Rica is known as an expensive destination.

"According to CANATUR, increasing the prices of services offered by different industry sectors will affect the decision of the traveler to visit the country or choose another destination.

According to CANATUR President, in the last Tourism Competitiveness Index developed by the World Economic Forum, Costa Rica lost two positions.

"Increasing the prices will make us be less competitive than our competitors," he stated.The third reason given by the sector is that the application of VAT means that the industry would take the final costs of the tourism product.

Currently, some services like car rentals and tour operators are not taxed. If the new tax is approved, this would represent a blow to employers in an industry where 85% of its companies are small and medium enterprises (SMEs) and the tourists would feel the impact with the increase in rates for these services.

Finally, CANATUR says that the industry has failed to recover from the effects of the global crisis, which saw a decrease in visitor arrivals as well as variables of stays, spending and hotel occupancy. In addition, other external factors of the activity, such as an 18% fall in the exchange rate, have negatively affected revenue and profitability of companies.

According to CANATUR, based on the World Tourism Organization (WTO), projections for the coming years are modest in terms of growth. This implies that tourism seems to continue on an unstable path.

Ramos says that CANATUR is aware of the fact that the country needs fresh revenue that would enable it to break the deadlock; however, he stressed on the tourism sector not having fully recovered from the effects of economic recession and that most companies have had difficulty staying afloat; these new charges darken the way.

CANATUR, in conjunction with other Chambers and industry associations, submitted a proposal in early November to the Minister of the Presidency, Carlos Ricardo Benavides.

The objective of this proposal is to contribute to tourism SMEs for them not to disappear due to the absorption of the cost of the tax; this will also allow them to reduce the risk of loss of competitiveness against other destinations, conform to industry changes gradually and to promote the total formalization of tourism activity.