BOTH Commerce Minister Nicos Rolandis and Zacharias Ioannides, Director-general of the Cyprus Hotel Association said they were satisfied with yesterday’s "consensus" over re-imposing two old taxes on hotels.
The compromise concerned a plan to re-introduce the three per cent beverage tax, plus a sliding overnight fee on Cyprus hotels in order to help fund the Cyprus Tourism Organisation (CTO), which markets Cyprus as a tourist destination.
Rolandis and Ioannides agreed yesterday that the VAT charged to hotels would drop to five per cent – instead of rising to the 10 per cent everyone else will have to pay if the VAT bill passes Parliament, on its way to EU norms of 15 per cent.
This VAT drop, Rolandis said, would "offset the three-per cent levy" re-imposed on hotels in addition to the overnight fee, which starts at £1 for a five-star hotel guest and drops on a sliding scale according to a hotel’s star rating.
Rolandis reluctantly re-introduced the old fees when in February the House of Representatives rejected the state’s £12 million budget to fund the CTO – which the state usually supplements with an extra £7-8 million a year.
The three per cent levy was abolished years ago and replaced by annual budget allocations. However, for the last three years in a row, the communist Akel and centre-right Diko parties have wanted it re-introduced, since the tourism industry has grown each year and they felt no need to subsidise profitable hotels.
Their stance got some support from Rolandis’ own 1999 report that last year’s tourism revenue had passed the £1 billion mark for the first time, a 16.4 per cent increase over 1998.
"I think we worked out a plan which appears to be OK. And we shall submit this to the Council of Ministers," Rolandis told the Cyprus Mail.
"The disputes and the question marks were about that three per cent levy: to which services it should apply, in which way, to what extent, and whether it should apply in winter as well as summer," he said.
"These were the main questions… (and) to quite some extent they were sorted out," Rolandis said, adding: "Personally, I’m satisfied" at the compromise.
He said the tentative deal would first go to the Council of Ministers, "which has already decided in principle" in favour of it, and then on to the House.
While cautious as to the prognosis, Rolandis said, "normally I would say yes" – that it will pass the House – "because what the hoteliers are giving is equal to what they are taking advantage of."
"What we have considered today," Ioannides said, "is a compromise in order to facilitate the government and the political parties to reach an agreement for the VAT (bill) to go through (Parliament)", where it has stalled over political interests unrelated to the hotel industry’s tax situation.
Ioannides said the compromise to drop the hotel industry’s VAT to five per cent "had improved its competitiveness."
Rolandis’ reluctance to re-introduce the three per cent hotel levy was based on his claim that, while tourism numbers were up, "profits are very slim," especially because "surrounding countries are offering dirt-cheap (tourism) packages."
He said passing on another three per cent in hotel charges to tourists would be disastrous to the island’s already poor competitiveness.
"We cannot be unsatisfied (with the deal)," Ioannides said. But he noted Cyprus was "unique in Europe" in that "there is not a single (EU) country that calls for the hotel industry to contribute to sustain the national tourism institute."
While he said the industry would go along with the compromise, he said he believed "it is the obligation of the state, from its budget, to supply the means to fund the national tourism organisation," not the hotel industry.
