The Association of private tourism agencies of Uzbekistan sent a letter to the State Tax Committee, the Ministry of Finance, the State Committee for Tourism Development, the National Agency for Project Management and the Cabinet of Ministers.
In it, the organization asks to take into account when developing a new Tax Code that the introduction of VAT will lead to an increase in the cost of tour packages and a decrease in the competitiveness of Uzbekistan in the international tourism market, and also proposes specific measures to get out of the current situation. Gulchekhra Israilova, Chairperson of the Association of private tourism agencies of Uzbekistan, spoke in more detail about the problem and methods of its solution.
What is the problem?
For the first time, leading tour operators brought this problem up for discussion at a high level in July 2018 at a meeting of members of our association with Deputy Prime Minister Aziz Abdukhakimov, and then at a meeting in the Cabinet of Ministers.
To study it in detail and work out ways to solve it, a working group was created, which included experts in the field of tourism with more than 20 years of experience in the industry. Letters were prepared in which a detailed alignment of the situation with calculations and proposals for a way out of the situation is given. Today, the development of tourism is given priority attention as a leading sector of the economy, and we believe that the state should support us.
As you know, a new Tax Code is being prepared now. It is planned that enterprises with a turnover of more than 1 billion soums will switch from a single tax payment to generally established taxes. The sale of tours for foreign currency and the attraction of foreign tourists to Uzbekistan are recognized as the export of services.
This means the end of 2019 support for exporters of services and, in particular, the entire tourism industry. And without it, the development of the industry is impossible. Moreover, without support, we expect a significant decrease in the flow of foreign tourists, the inflow of foreign exchange earnings, employment, both in the tourism industry itself and in related areas.
Thus, with the transition of enterprises in the tourism industry to general taxation including VAT, the tax burden on related enterprises will increase and, as a result, the flow of foreign tourists will decrease due to higher prices for tours. In this regard, a significant part of the flow of foreign tourists will simply be reoriented to other competitive destinations.
We see a way out of a situation that is obviously dangerous for the development of tourism in the country in the correction of some articles of the Tax Code, and this is what we are talking about in our appeals to the authorities, and we also offer three options for a way out of this situation.
What to do?
We offer three options that will help increase the profitability of the tourism industry, additional budget revenues from corporate income tax.
Option №1.
We propose to exclude the words "tourist and excursion services" and the corresponding paragraph from paragraph 15 of Article 208 of the Tax Code, but introduce a new article (for example, 217-2) with the text "Turnover from the sale of tourist and excursion services is subject to value added tax at a zero rate ".
As a result, it will be possible to take into account VAT on incoming services (hotels, museums, restaurants, etc.), since instead of non-taxable turnover from tour operators, it will be taxed, but at a zero rate.
Option №2.
The essence of the proposal is to exclude from paragraph 15 of Article 208 of the Tax Code the words "tourist and excursion services" and the corresponding paragraph and supplement Article 212 with the words "and services", that is, to extend the effect of the zero VAT rate to the export of services, not just goods ...
The result will be almost the same as in the previous version, but in addition to the tourism industry, the provision of any other services for export will be stimulated, which will lead to an increase in the inflow of foreign exchange funds into the republic.
Option №3.
It is possible to get out of this situation by keeping the provisions of paragraph 15 of Article 208 of the Tax Code in terms of tourist and excursion services unchanged, but at the same time excluding from Articles 220 and 221 the provisions prohibiting the acceptance of VAT on goods (works, services) used for non-taxable turnover.
The logic of VAT incentives is to restrain the rise in prices for the relevant goods (works, services) for the end consumer. However, in the current version, the VAT exemption does not achieve this goal, since it prohibits the offset of input VAT, which in any case forces the beneficiary to raise prices.
If proposal No. 3 is adopted, the prices for all goods (works, services) for which benefits are provided for in Article 208 will not increase when enterprises in the corresponding industries switch to VAT, which is the initial purpose of establishing these benefits.
We hope very much that one of our options will be adopted during developing new tax legislation, which will ensure sustainable development of the tourism industry and the country as a whole.