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Exemption of Ukrainian Hotels from Income Tax

Verhovna Rada of Ukraine registered a draft law № 6309 “About amendments made to some laws of Ukraine for the purpose of development and preparation of hotels for the Final Part of the European Football Championship 2012 in Ukraine”. The main point is exemption from income tax of 3-5* hotels which was reconstructed, repaired or put in operation before September, the 1st 2012.  

Approving this draft law will not disprove the fact that more than half of the projects claimed to Euro 2012 are in the infant stage, 90% requires financing and will not be put in operation before September, the 1st 2012 for sure.

The proof of this forecast is the policy of Kiev authorities. Kiev was given the right to host final matches of the final part of Euro 2012. April, the 27th the first deputy head of Kyiv city state administration Anatoliy Holubchenko during the press conference "Kyiv and EURO 2012: UEFA requirements, authority plans" informed that only 7 hotels will be put into operation for Euro 2012 and ensure that the total number of rooms, taking into account existing ones, will satisfy UEFA requirements.

A year ago attempts to solve this question failed. November, the 13th 2009 the draft law № 5346 about amendments made to some laws of Ukraine ”About Value-added Tax” (favourable taxation policy for providing some tourism services) was registered by Mr. Sergey Terekhin. It was supposed to establish zero VAT rate for accommodation, f&b, sport, health-improving services provided by tourist facilities i.e. hotels, motels, tourist complexes, health-improving complexes for the period from December, the 1st 2009 till February, the 28th 2010. Tax benefits were planned for travel companies as well. Such interim measures could soften world recession effect on Ukraine travel industry as well as dramatic decline of occupancy rate, especially in West Ukraine which was a result of unreasonable panic concerning seasonal flu epidemic.

The draft law № 6309 was urgent in 2008. In conditions when almost all objects are frozen and require financing this draft law is not effective and just supports corruption. Many questions need to be improved by professionals and specialists of hotel industry. Is this law applicable to hotels which were built or reconstructed earlier? Will facade renovation be enough for tax exemption? Will it be unfair to leave taxes for hotels that were put into operation some years ago or these hotels will need to initiate renovation with the purpose of tax exemption?

Example of the efficient considered policy of preparation for EURO 2012 is Poland. Due to EURO-2012 since the first of January, 2008, the City Council of Warsaw put exemption from real estate tax during five years for investment into hotels, boarding houses, tourist and sports activity. Due to such innovation Warsaw expects hotel increasing for 25-30 % till 2012. The tax exemption is also spread for excursion, tourist events’ organizers, guides, for stadiums, swimming pools, golf courses, tennis courts, bowling alleys, etc.

One more impressive example of government support of tourism development is Turkey. Turkish model is the example of market orientation, when hotels are built at the cost of entrepreneurs and from the moment of construction new hotel is exempted from taxes from 5 years. Also Turkish Government provides considerable support in advertising of tourist product on the international market.

Ukraine Governmental programs and laws orientated on Ukrainian hotel business support and development should be strategical and considered. Ephemeral approach to hospitality industry is inadmissible. Hospitality specialists are skeptical about this draft law. The most effective measures of hotel industry development and functioning are lowering or even the cancellation of VAT.

Attempts of Ukraine Government to support hotel business development should be specially mentioned, but no cardinal steps to regulate this sphere were made until now. Economy regulation should be implemented by means of directive planning, stimulating market self-regulation. Still there is hope that hotel business policy provided by the new Government will be considered and effective and this policy regulation will be complex and based on market demand.