Bulgaria’s tourist sector stands only a slim chance for preserving its preferential value added tax (VAT) treatment for selling tour packages to foreigners.

This was unveiled after a meeting on March 17 of sector representatives with President Georgi Purvanov, State Agency on Tourism Chair Mario al-Djebouri and Finance Minister Plamen Oresharski.

Currently, Bulgaria charges only seven per cent VAT on tourist packages for foreigners (with the most controversial point being hotel accommodations). However, in line with its commitments to the European Union (EU), the country will have to raise the rate to 20 per cent, which is the uniform rate for all goods and services in Bulgaria.

Purvanov, al-Djebouri and Oresharski have told tourism entrepreneurs that they will seek ways of securing a lower rate for hoteliers and restaurateurs. However, according to Oresharski, the country has also made the commitment to increase the VAT under the finance negotiation chapter with the EU, and attempts to re-open the chapter would be useless.

Even if doing it, Bulgaria would hardly achieve better financial terms for the development of its tourist sector, Oresharski said.

Sector representatives are suspicious that the EU would not allow Bulgaria to continue competing successfully with its summer tourist product-member countries because of lower VAT.

Balkan Federation of Travel Agencies Association (BAFTAA) Deputy Chair Nedyalka Sandalska said after the meeting that the tourist sector needed to find balance between Bulgaria’s “Europeanisation” and the introduction of certain standards, including tax policy standards, so that the industry could be competitive.

The new tax burden for Bulgarian tourism is envisaged in the new VAT Bill, which has been prepared by the Finance Ministry. If passed by Parliament, it will enter into force in 2007.

An increase to 20 per cent in the VAT rate for hotels, for instance, will increase prices by more than 13 per cent, discouraging customers. About 80 per cent of foreign visitors come to Bulgaria through foreign tour operators and their packages of hotel, food and other services currently include seven per cent VAT.

If prices increase by 13 per cent next season, hotels will face quite serious problems. Their sales will slump or expenses will surge. In both cases, hotels may be forced to stop operating, as they will be unable to cover their costs and repay investment.

Sandalska said that contracting in tourism is done at least one year ahead and a 13-per cent hike of packages for foreigners has not been incorporated into the price for next year.

“The state should clearly assess the priority branches that it wants to develop and for which it can introduce a differentiated VAT rate,” said Sandalska, citing Greece, which has introduced four per cent VAT for development of island tours.

She also said that the state could support the tourist sector by spending more money on modernising the country’s infrastructure. In her view, this will encourage the attraction of richer tourists, who will be ready to pay the higher prices that will come as a result of the VAT hike.

Increasing the funding for national tourist advertising would be an addition to the efforts for making the sector more competitive, Sandalska said.

Hoteliers and restaurateurs, however, said that al-Djebouri had only made a commitment to present an overall strategy for tourism development.

Oresharski opposed the sector’s desire to have preferential treatment, saying that the country’s tax policy was designed to secure sector neutrality. In his view, any tax reliefs would lead to breaching that principle and would create conditions for unequal chances among the different economy sectors.

Oresharski believes that the tourist sector may compensate for the 13 percentage points increase in VAT with the lowered corporate tax and other direct taxes.

In another development on March 16, the Bulgarian Cultural Centre in Paris hosted its fourth successive presentation of Bulgaria as a tourist destination.

The event was organised by the Bulgarian Embassy in France.

Welcoming the guests - who included Deputy Agriculture and Forestry Minister Stefan Yuroukov - Bulgarian Ambassador in Paris Irina Bokova expressed her satisfaction with the growing number of French tourists visiting Bulgaria. They numbered 74 019 in 2005, up 25 per cent from 2004.

France now ranks 16th among the countries whose tourists show interest in Bulgaria’s cultural and historical heritage, as well as in the increased opportunities for tourism business.

Bokova shared Bulgaria’s hope that the active bilateral contacts will help a further increase in the flow of French tourists on the eve of the country’s accession to the EU.

Commercial and Economic Attache at the Embassy Arto Chirakian presented Bulgarian-French tourist contacts. He noted the steady increase in the number of French tour operators targeting Bulgaria as a hot tourism destination. They currently number approximately 60.

Representatives of foreign media and publishers - including Hachette, Lonely Planet, Michelin and Mondeo; CNN, Euronews, Liberty TV and the most influential French TV station TF1; and the travel magazines Printemps Voyages, Tour Hebdo and Voyages Plus - also showed interest in the event.