Foreign tourists visiting Israel don’t currently pay value added tax on their accommodations and other services such as car rentals. The proposed state budget provides for the elimination of the exemption, however, and even though the change has not yet been approved, the prospect that foreign tourists will pay full VAT charges has already resulted in one major group choosing to go elsewhere, an industry source says.
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“We have been working for a long time to bring an incentive tour [to Israel] from a huge window company,” said Eshet Tours’ director of incoming tourism Amnon Ben-David.
But the proposed change meant his agency couldn’t commit to a price.
“They planned on bringing 500 people to Israel in the fall and were debating whether to hold their convention in Israel or Rome. They sought a commitment from us that the price they settled on with us now would be final for the coming year and we couldn’t commit to that because of the issue of value added tax,” said Ben-David, adding he was then informed that the window firm decided to go to Rome.
Although the scrapping of the VAT exemption is not final, it is planned in conjunction with an increase in the VAT rate from 17% to 18%, and the Israel Incoming Tour Operators Association says imposing 18% VAT on tour groups would lead to the cancellation of about 6,000 groups involving up to 200,000 foreign visitors, as well as shorter stays by those who do come.
As a consequence, the association says, the tourism sector would suffer a loss of 60,000 days of work for tour guides and drivers, fewer visitors to the national parks and a negative economic impact, primarily in Jerusalem and outlying areas of the country.