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A tax compromise preserves Ukraine's status as a tourist destination
Saving the Tourist Season
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Photo: BIZPRO
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The Swallow's Nest is a popular tourist destination in Crimea.
Ukrainian tour operators and agents have learned how to effectively maintain a dialogue with government authorities and protect their interests.
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In March 2005, Ukrainian tour operators and agents were astonished to learn that the latest amendments
to the state budget law would introduce a value added tax — VAT — on inbound tourism services in Ukraine
for the first time ever. As long-term contracts for the upcoming season had already been signed,
tour operators faced two options: increase the price of each contract by up to 26 percent, or
pay the VAT out of their own pockets. The first option would most likely lead to termination of
contracts and make 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.
As part of its effort to increase the competitiveness of the Ukrainian economy, USAID identified the VAT
as a serious threat to the tourism sector and its elimination as tourism's most urgent regulatory problem.
At a conference it sponsored in Yalta, USAID helped stakeholders draft and send letters to government
officials to draw their attention to the problem and urge a moratorium on VAT for the upcoming tourist
season. They also presented their comments to the European Business Association, the American Chamber of
Commerce and Ukraine's State Tourism Administration. These efforts initiated a much-needed discussion
between entrepreneurs and state officials.
As a result, a law was passed on June 3, 2005, that stipulates that all contracts signed before March 31,
2005, will be taxed according to legislation that was in force before that date. The new rules on taxation
of tourism services will come into effect on September 1, 2005, which will prevent a surge in prices during
the summer season and allow tour operators and agents to honor their contracts.
This important compromise has saved Ukraine's 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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