TIRANA, April 12 – The cut in the value added tax from a standard 20 percent to a differentiated 6 percent for the tourism accommodation sector will have a negative effect of only 1.1 billion lek (€8 million) to public finances, which the government hopes to compensate through fighting widespread informality in the sector.
Last week’s government decision came as a surprise ahead of the general elections, meeting a perennial request by tourism operators who say the move is expected to increase the country’s competitiveness compared to other regional countries already applying VAT rates of below 10 percent and trigger new investments. The cut applies only to accommodation services, excluding bar/restaurant and entertainment services in tourist accommodation establishments, dominated by hotels, but also motels and guesthouses in the emerging mountain tourism.
“In order to provide incentives to this sector, the cut in the tax burden only for the accommodation service in accommodation units will bring positive effects in improving service quality, triggering tourist growth and new jobs,” says the Albanian government in its report accompanying the draft law on some changes to the VAT law.
The cut also comes as some of Albania’s biggest companies previously engaged in the now ailing construction industry have turned to tourism, building resorts as the country’s emerging travel and tourism industry rapidly grows and is set to become one of the key drivers of the Albanian economy.
Niko Lera, the tax policy head at the finance ministry, says some 4,000 accommodation units with a capacity of 50,000 beds are expected to benefit from the tax cut, starting this summer when the legal changes are expected to become effective.
“This measure targets the further formalization of the sector. There will be an awareness campaign and the principle is that when the tax burden drops, in this case a 2/3 decrease, the number of accommodation units paying VAT will increase,” he says.
Albania is the only regional country to apply a standard VAT rate of 20 percent on almost all goods and services, including basic food, except for medicines which are VAT free.
All regional Western Balkans countries, including EU member Croatia apply differentiated VAT rates ranging between 5 to 13 percent on basic food, medicines and hotel accommodation.
Neighboring Macedonia and Montenegro apply differentiated VAT rates of 5 to 7 percent on basic food and accommodation services, compared to Kosovo’s 8 percent, Serbia’s 10 percent and Croatia, the region’s most developed tourism destination at 13 percent.
