The Ministry of Finance agreed to zero VAT for tour operators from the beginning of this year

The Ministry of Economics has proposed zeroing VAT for tour operators for domestic and inbound tourism in order to synchronize this support measure with a benefit for hotels. Such a request was made by the head of the Ministry of Economic Development Maxim Reshetnikov during a meeting of the president with members of the government. Resetting VAT is proposed to be issued “backdating” – from January 1, 2023 to July 2027.

In July 2022, a law was signed to zero VAT for hotels, which turned out to be a “landmark” decision and increased investment in the industry, Reshetnikov noted. In addition, VAT was zeroed for many rail and air transport. “As a result, tour operators who buy hotel rooms in bulk and order transportation, pay VAT on their own. It turns out that they have zero input VAT, and they have to pay 20% of the outgoing VAT, and VAT plays the role of a turnover tax,” the Minister of Economic Development noted.

According to Reshetnikov, system operators have begun to lose competition either to small companies on a simplified tax system, or to platforms that work according to other schemes. “We urgently need tour operators for the development of the tourism industry, because they roll out new routes and guarantee a comprehensive product. These are backbone organizations in the industry,” the head of the Ministry of Economic Development emphasized.

“What is the attitude of the Ministry of Finance to this VAT proposal? It must be borne in mind that, of course, tour operators cannot deduct VAT, this puts them in a very difficult position,” Russian President Vladimir Putin commented on the proposal.

Finance Minister Anton Siluanov assured that the Ministry of Finance had agreed on the initiative: “Despite the reduction in the revenue base, it is insignificant – about 3-4 billion [руб. в год]this is a fair offer that will stimulate the tourism business.”

The industry has been talking about the tax disparity for tour operators and hotels since last summer, right after the law went into effect. Zeroing VAT for hotels will lead to an increase in the fiscal burden for tour operators and force them to raise prices for consumers, Opora Rossii said in an appeal to Finance Minister Anton Siluanov. Due to the exemption for hoteliers, tour operators will not be able to deduct incoming VAT from hotels, as a result of which they will bear the burden of paying the tax, in fact, “alone”, the letter noted. Vedomosti wrote about this on June 30.

The head of the abolished Rostourism, Zarina Doguzova, also raised this topic last year. At the same time, the Ministry of Finance then noted that zeroing the VAT rate for tour operators was not considered. After the abolition of the department, regulation of the tourism sector was transferred to the Ministry of Economic Development, Deputy Minister Dmitry Vakhrukov became the curator of this industry.

In early November, the president instructed the government to consider zeroing VAT for tour operators by December 1.

Resetting VAT for hotels will cost the budget more than 400 billion rubles. for 2022–2027 follows from the Main Directions of the Budget and Tax Policy of the Ministry of Finance. In addition, there is now a reduced VAT rate of 10% for domestic flights through the airports of the Moscow air hub and a zero rate for flights outside this territory.

The law exempting the hotel business from VAT on the main type of activity – for accommodating guests in rooms, is effective from July 1, 2022. The rate will be zero for five years on the provision of places for temporary accommodation in hotels and other accommodation facilities. In addition, the exemption applies to services for the provision of rental facilities for the tourism industry, built after January 1, 2022.

This is a common victory that will have a positive impact on the development of mass tourism in the country, Alexei Kozhevnikov, a member of the public expert council of the Tourism and Hospitality Industry national project, told Vedomosti. The decision is effective and timely, Kozhevnikov emphasized. Roman Yeremyan, deputy chairman of the council of the Union of Tourism and Hospitality, agrees with him: “This is a good decision that costs almost nothing for the budget.”

According to Kozhevnikov, approximately 30% of trips across the country are made with the help of tour operators, while the profitability of the business is extremely low. Package tours now turn out to be more expensive than the independent purchase of a hotel, transportation and excursions separately, or companies are forced to work at a loss, Kozhevnikov noted.