Riga, which was previously been the leader among Baltic capital cities when it comes to the number of nights guests to the city spend there. This means Riga has lost its No. 1 position and is now No. 2, the President of the Association of Hotels and Restaurants of Latvia (LVRA) Andris Kalnins has said.
The data compiled by the association showed that in the first half of this year the number of nights spent by foreigners in Riga was 851,000, up by 7% YoY, while in Tallinn the number of nights spent by foreigners in the first half of this year was 1.075 million, but in Vilnius – 699,000.
Kalnins also mentioned that Latvia remained in last place in the European Union (EU) in terms of post-pandemic tourist number restoration when compared to the pre-pandemic 2019.
Although there was a slight increase in the number of tourists in the first half-year, the overall number of tourists still did not reach the pre-pandemic level.
He said that the number of nights spent by foreign tourists in Riga, when compared to 2019, was down by 35%, which was the biggest drop among Baltic capital cities, because the drop in Vilnius was 22% and in Tallinn it was 12%.
The association’s president said Latvia’s hospitality industry was currently going through a difficult period, which was characterized by a number of significant challenges that significantly hindered its development and competitiveness, including the consequences of the post-pandemic period, as well as various economic challenges and external factors, such as the Russian war in Ukraine, had created an additional burden on the industry.
“The main factors that complicate the sector’s work include the significant rise in the prices of energy resources, record-high costs of raw materials, as well as the growing labour costs. On top of that, Latvia’s labour costs are not competitive when compared to other Baltic States, which causes additional pressure on operations and delays sustainable development,” said Kalnins.
According to him, to improve the situation in this sector, it is necessary to perform several important measures. One of the main solutions is lowering VAT for public catering services.
Kalnins stressed that representatives of this sector had been requesting changes for a long time. A collective application signed by more than 12,000 Latvian residents was submitted to the Saeima.
“Despite support from a large number of people, neither the government nor the Saeima have taken to solving this issue so far. The introduction of a reduced rate of VAT on catering services would make prices more competitive, improve the profitability of businesses, make services more accessible to the local community, reduce the shadow economy and promote fair competition,” stressed Kalnins.
He also said that improvements in tax policy were needed to make Latvia’s business environment more attractive and competitive in a regional context. This includes not only reducing the tax burden on labour, but also state support mechanisms that would help maintain and attract skilled labour.
Kalnins also said the prospects for the development of the hospitality industry in the coming years were closely related to the effectiveness of the country’s political and economic activities.
“If the necessary steps are taken to strengthen the recovery and competitiveness of the sector, it is possible to achieve stable growth. However, if critical issues such as reducing the VAT rate and reducing the tax burden on labour are not properly addressed, the sector may continue to face difficulties and continue to be uncompetitive at regional level,” he said.
According to him, it is important to be aware that the hospitality industry in Latvia is essentially an export sector that makes a significant contribution to the economy, amounting to more than 1.2 billion euros of export revenue, therefore it is important to ensure government support to strengthen the industry.
The Ministry of Finance does not support the application of the reduced VAT rate to catering service providers according to certain criteria, while in the opinion of the Ministry of Economics a uniform reduced VAT rate should be applied to the entire sector, according to a reply letter supported by the government to the Saeima’s Committee on Economic, Agrarian, Environmental and Regional Policy in July on the collective application from Latvian citizens “On the introduction of reduced VAT in the amount of 12% for public catering”.
The government’s reply letter prepared by the Ministry of Finance mentions that the application of such a reduced rate will create a disproportionate administrative burden for both service providers and the State Revenue Service (VID), as well as create risks of compliance with tax obligations. (BNN)