Analysis of the price effects of VAT reform in the tourism industry: Data-output analysis

Document Type : Research Paper

Authors

1 Assistant Professor of Tourism Economics Department, Institute of Tourism Research at ACECR (Academic Center for Education , Culture and Research) Khorasan Razavi, Iran

2 Researcher of Academic Center for Education, Culture and Research (ACECR), Khorasan Razavi, Iran

10.22080/jtpd.2023.22819.3646

Abstract

Context and Purpose: According to the VAT law in Iran and the activities of the tourism industry that are subject to VAT exemptions, this study examines the sections of "Accommodation, transportation, and travel agencies" separately.
Design/methodology/approach: This study uses an input-output model to analyze the price effects of VAT in the Iranian tourism industry. Introducing VAT in the production chain of products is one of the advantages of using this model. The effects analysis has been done in different scenarios.
Findings: The results showed that (1) in the accommodation sector: VAT exemption for 4- and 5-star hotels (first scenario) will not have a significant impact on tourism development. Also, by extending tax coverage to all hotels, apartment hotels, and guesthouses (second scenario), a relatively more noticeable effect will occur. (2) In the transport sector: the imposition of taxes on passenger services (rail and air) will have far-reaching distributional effects on the tourism industry, although overall it will have little effect on the general Iranian economy. (3) In travel agency services: the imposition of VAT (9%) on the services of travel agencies and tour operators and the price effects it has on the whole economy is 97% direct and only 3% indirect. (4) The backward and forward linkages related to tourism sub-sectors show the importance of transportation sub-sectors in the inter-sector relationship with other economic bodies.
Conclusion: In tax policies, travel agency services should be supported because they are most effective from the price policies of the tourism industry. Also, transportation services are important due to the extent of inter-sectorial relations. Any policies that have price effects on the tourism economy should be done with more consideration. Also, depending on the type of tourist and the policy maker's purpose of tax, side analyses should be done in this regard.
Originality/value: The Input-Output analysis in tax explanation in Iran's tourism sector is used for the first time in this study. In addition to innovation in the methodology, there is also innovation in the field and subject of research.

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References

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Journal of Tourism Planning and Development
Volume 11, Issue 42
November 2022
Pages 89-112

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