Saving the 2005 Tourist Season in Ukraine
In March 2005, Ukrainian tour operators and tour agents were astonished to learn that the latest amendments to the State Budget law would introduce VAT (value added tax) on inbound tourism services in Ukraine for the first time ever. As their long-term contracts for the upcoming season had already been signed, tour operators faced two options: to increase the price of each contract by up to26 percent, or pay the VAT out of their own pockets. The first option would most likely lead to termination of contracts, making Ukraine far less attractive for tourists from abroad; the second option would drive many operators and agents out of business. Ukraine’s reputation as a tourist destination was at stake.
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The Swallow's Nest, a popular tourist destination in Crimea
Credit: Photo by BIZPRO |
Experts of the USAID-supported project BIZPRO tackled the issue as part of the project’s efforts to increase the overall competitiveness of the Ukrainian economy. They identified introduction of VAT on inbound tourism services as a serious threat to the competitiveness of the Ukrainian tourism sector. Subsequently, VAT elimination was defined as the most urgent regulatory problem facing the sector in a stakeholder working group meeting on April 26, 2005, as part of BIZPRO’s conference Enhancing the Competitiveness of the Ukrainian Tourism Sector in the Crimean city of Yalta. BIZPRO helped the stakeholders draft and send letters to President Viktor Yushchenko and Prime Minister Yulia Tymoshenko to draw their attention to the problem and place a moratorium on VAT for the upcoming tourist season.
BIZPRO and the stakeholders then presented their comments and suggestions to the European Business Association (EBA) and the American Chamber of Commerce. They also met with First Deputy Head of the State Tourism Administration of Ukraine, Mr. Anatoliy T. Matvienko. These efforts initiated a much-needed discussion of this issue between entrepreneurs and state officials.
As a result, a law was passed in the Verkhovna Rada on June 3, 2005, which addressed many of the issues raised by BIZPRO and the Tourist Sector Working Group.
The Ukrainian law now stipulates that all contracts signed before March 31, 2005, will be taxed according to legislation that was in force prior to that date. The new norms regarding taxation of tourism services will come into effect starting September 1, 2005. This prevents a surge in prices during the summer season and allows tour operators and agents to honor their contracts. The Law of Ukraine On Amendments to Some Laws of Ukraine (Regarding Taxpayers) was signed by the President of Ukraine on June 25, 2005, and came into effect on June 30, 2005.
Ukraine has saved its reputation as a popular and affordable tourist destination, and Ukrainian tour operators and agents have learned how to effectively maintain a dialogue with government authorities and protect their interests.
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