Israel tour operators against Finance Ministry plan to repeal tourism VAT exemption

Wednesday, February 22, 2023

A major group of tour operators has written to the Finance Ministry in Israel to express their opposition to a plan in the upcoming state budget to repeal a VAT exemption on tourism services for foreign tourists, claiming that it will considerably boost costs and hurt the local economy.

Tourists are now exempted from the 17% VAT on services such as hotel accommodations, automobile rentals, catering, travel agency services, and more.

Michael Federmann, Chairman of the Tourism Industry Coordinating Office in Israel, wrote in the letter Sunday that “canceling the VAT exemption for tourists would be a damaging and irreversible move for the Israeli tourism industry, for the Israeli economy, and for Israel’s world image.”

Members of the group include some of the country’s largest tour companies.

The abolition of the VAT waiver is anticipated to be included in the so-called Arrangements Bill. The Arrangements Law governs how money in the annual budget are distributed.

“We believe that it is not possible to make a decision on the matter without establishing a government policy on incoming tourism and without conducting an up-to-date study on the target audiences, the level of demand, the contribution of tourists, and more,” Federmann wrote.

He argued that the data used to make the judgement is based on “an irrelevant research done between 1997 and 2008 and released nearly a decade ago in 2011.” Federmann said, “This is a flawed decision-making procedure, without a factual foundation, irrelevant and unreasonable.”

According to an expert assessment given by Channel 12 news, requiring travellers to pay VAT will result in a 5% decrease in the tourism business, wiping out more than NIS 1 billion ($280,674,200) from the economy.

According to tax specialist attorney Ayelet Yitzhaki, collecting VAT might affect overseas Israeli tourism firms because the present zero tax norm was greeted with reciprocity in several countries that similarly exempted Israeli operators from VAT. If Israel withdraws its exemption, other nations may do the same for Israeli enterprises, increasing their costs, she warned.

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