Client: Estonian Hotel And Restaurant Association
Period: 2023
Estonian Government plans to raise the value-added tax rate on accommodation services from 9% to 22% starting from the year 2025. In this study, the impact of this change on the value added created in Estonia, tax revenue, and the more significant economic indicators of the accommodation sector was assessed. The results of the analysis show that in this form, it is not a good initiative. Raising the VAT on accommodation services increases their price by nearly 12% and causes a decline in the demand for accommodation services.
Although VAT revenue would increase by 13.9 million euros, the total tax revenue would decrease by 3.9 million euros per year due to the decline in the collection of other taxes. The competitiveness of companies in the Estonian accommodation sector would also be harmed. The added value of the accommodation sector would decrease by 16.7 million euros and profits by 2.7 million euros. The sector could lose around 450 jobs.