Mashhad Hotel Apartments in Precarious Position

The taxman has come knocking and hotel apartments in Mashhad, which have racked up an outstanding amount of dues, are now in a precarious position.

According to a report published by travel news website Donyayesafar.com, the Iranian National Tax Administration has pulled out files dating back five years and piled hotel apartments with hefty dues.

Mashhad, a holy city in eastern Iran which alone draws  nearly half of the country’s inbound tourists, is a prime location for hotel groups looking to expand their portfolio, but some worry the recent development might discourage potential investors. However, the Iranian government is giving new hotels 100% tax holidays for three to 13 years, based on the location of the business, so this setback for hotel apartments is unlikely to deter foreign hotel chains.

The Dubai-based Rotana is expected to open two hotels by 2018 in the city. In fact, hoteliers in Mashhad rarely complain of low occupancy rates. Mashhad, which is home to the shrine of Imam Reza (PBUH), receives more than 25 million domestic and foreign tourists every year.

But the average annual occupancy rate in Mashhad’s hotel apartment’s hovers at around 30%, which the owners of these establishments blame on the presence of “unauthorized” hotel apartments. In an interview with news website Titreshahr.ir, Mehdi Ajilian, vice president of the city’s Union of Hotels and Hotel Apartments, said authorized hotel apartments only have 100,000 beds, while illegal ones have around 150,000.

According to Ajilian, some 80% of all hotel apartments in Iran are located in the holy city, making the sector too competitive.

Forced to settle the piles of unpaid debt on the eve of the two-week Norouz (Iranian New Year) holidays, starting March 21, hotel apartments have been caught between a rock and a hard place, as they can’t close shop and clear their debts, or run their facilities without repaying their debts.

The bulk of the debt is made up of unpaid value-added tax. Hotels and hotel apartments are charged 9% VAT on room occupancy, which hoteliers have long lobbied to get rid of it, albeit unsuccessfully. Jamshid Hamzehzadeh, the president of Iranian Hoteliers Society whose strict anti-tax rhetoric last year got him reelected, is a staunch critic of VAT. “[The VAT] puts a stay at a hotel out of many people’s affordability, not to mention the fact that it also inflates the overall cost of a trip,” he said last year, before urging parliamentarians to grant lodging facilities a tax holiday.