New deal puts Greek tourism into jeopardy

As Greece struggles to reach ‘cash-for-reform’ deal, new suggestions from its international creditors regarding value added tax adds risk to Greece’s tourism industry

Photo by: Reuters
Photo by: Reuters

Updated Jul 28, 2015

The tourism industry accounts for slightly under a fifth of Greece’s economic output and is seen as a key driver to push the debt stricken country out of recession after years of battling tough austerity measures and political unrest. However, with talks of reforms reaching an end without a desirable result, the future of Greece’s economy remains tapered.
The VAT (value added tax) has been fluctuating ever since the emergence of the debt crisis in Greece, however, according to recent reforms on VAT which will take effect as of July 1, 2015, lower tax exemptions for islands have been disregarded while a rise in taxes for restaurants and hotels could be reviewed at the end of next year.
According to the reform, taxes on food sold in restaurants will increase 23 percent from 13 percent. This is described as a “predetermined murder of tourism” said restaurant owners in Greece.
Many hotel owners also have the same concerns as they believe it could push millions of tourists away to cheaper holiday destinations.
A spokesman for the Arcadia Hotels Association stated that "any additional increase is bound to send millions of tourists and tour operators to cheaper destinations, which will, they say, inevitably lead to the certain decline of Greece's only productive industry."
Previously, the Syriza government was planning to disregard tax exemptions for some of its biggest islands such as Santorini and Mykonos. This created an uproar amongst the public and could leave tourists facing 30 percent higher VAT bills for goods and services on the islands.
Greek islands have had historically lower levels of consumption tax imposed on them. This benefited the country as people generally opt for holiday’s weighing less on their personal budget.
Additionally, possible restrictions of capital controls in Greece have raised alarms for those preparing to visit the country in the upcoming weeks.
Athens expects 25 million visitors in 2015, contributing up to a quarter of Greece’s income this year. However, the debt burdened country is struggling to reassure those intending to visit the safety of their holiday.
According to a BBC reporter Alex Vyzantiadis, owner of Kyklos travel, one of the largest travel agencies in Greece, said that capital controls are not what makes international investors wary of visiting the country.
"Tourists who get in touch with me are asking about the situation in the country and whether there will be unexpected events, such as demonstrations, shortages of products, vandalism and other incidents that will spoil their holidays. Although we do not have last-minute cancellations, many of our clients are expressing concern," he said.
Greek banks, have been hit hard by a wave of capital outflows amid a possible “grexit” from the euro. According to a senior banking source, the Greek public has pulled close to 2 billion euros out of banks in the last few weeks as debt talks continue to fail.
As Athens plunges further down into an economic crisis, visitors choose to contribute to the Greek economy. 

According to a report by the world travel and tourism council, Greece is ranked 33 out of 184 countries for their forecast for visitor export growth in 2015.

If Athens fails to reach a deal over the next few days, there is a high chance that it will not be able to avoid a default. If it fails to pay 1.6 billion euros to the International Monetary Fund by June 30, a bank run and capital controls are likely to happen, followed by an exit of the single currency area.

TRTWorld and agencies