Bulgaria to Introduce Flat 9% VAT in Tourism April 2011

Bulgaria will introduce a flat 9% value-added tax (VAT) in the tourism sector as of the beginning of April next year under amendments that parliament adopted at first reading on Thursday.

The move comes in response to the demand of the European Union that Bulgaria should harmonize tourism VAT, which currently stands at 7% for organized groups and 20% for individual tourism.

The government has said that the new tax had to be introduced at the beginning of 2011, but was delayed until April in bid to avoid messing up the tour operators business plans for the winter season.

The idea for a flat tourism VAT tax has sparked an outcry from tour operators and hoteliers, who called it "ridiculous" since all contract deals with foreign tour operators for the clients' vacations in Bulgaria in 2011 have already been signed and called for postponing the new tax until 2012.

Bulgaria approached the European Commission (EC) with an inquiry on the possibility to introduce a unified value-added tax (VAT) in the tourism sector from 2012, as proposed by the industry, but the proposal was rejected.

The government has defended its decision by saying this is not a fiscal measure, but a bid to avoid a sanction by Brussels for not putting on a par the two types of tourism - individual tourism and tourism for organized groups.

Tourism is one of, if not the most important industry for the perennially cash-strapped Bulgaria - it not only provides nearly 10% of the country's GDP, but is also a significant source of foreign currency and jobs. The industry has also been traditionally the favorite sector of those in power - it is the only one that enjoys a reduced value-added-tax.

Following its EU accession, Bulgaria was expected to capitalize on its tourism industry potential and benefit from the increased exposure and easier accessibility to its markets, but critics say it never made it to the breaking out of the champagne.

The economic growth that Bulgaria saw over the last few years was built upon the growth in construction, real estate and tourism sectors. The industry says the government should focus its efforts on the tourism sector and introduce a package of anti-crisis measures, now that the construction and real estate sectors are facing a collapse.