VAT Waivers for Inbound Tours

Following widespread protests by tour operators against imposing value added tax on tourism, Iran’s Cultural Heritage, Handicrafts and Tourism Organization revealed plans to modify VAT regulations affecting the sector.

Mohammad Moheb-Khodaei, deputy for tourism at ICHHTO, told ISNA that the organization has initiated talks with Iran’s National Tax Administration and reached agreements in this regard that will be finalized soon.

“Once the reformed law takes effect, VAT will not be imposed on the final cost of a package tour because it has already been levied on hotel rooms and other services,” he said.

He pointed out, however, that the exemption will only be applied to inbound tours as part of what he called “reversed export” and domestic tours will not be entitled to it since they do not contribute to the inflow of foreign exchange.

He explained that the inflow of foreign currency through tourism could be regarded as that gained through the export of goods, but the concept has not been established leading to a legal vacuum in this regard. “Based on law, incentives are envisioned for the export of non-oil goods and services while inbound tourism that is a source of foreign exchange earnings is deprived of such benefits,” Moheb-Khodaei said.

The INTA has agreed to reconsider the law and make amendments through the legislature.

“Although the matter is still under study, it has made favorable progress,” he said.  VAT is a tax on the amount by which the value of an article has been increased at each stage of its production or distribution. The VAT law in Iran was introduced in 2008 and has been officially enforced since 2014. The tax is levied on all goods and services unless exempted by law.

As the tax eventually leads to an increase in prices, it has faced widespread criticism.

  Multiple Taxation

Tour operators have been among the staunchest critics of the plan because under law, a package holiday-maker has to pay the VAT several times to the hotel, airline, restaurant and finally the travel agency that has arranged the tour.

During a recent conference, Ebrahim Pourfaraj, the head of Iranian Tour Operators Association, had called on authorities to eliminate the tax and threatened a halt to the union’s operations.  

He had complained that Iranian companies have been accused of fraud and abuse of state regulations by their foreign partners for enforcing the tax on tours.

Ali Asghar Mounesan, the ICHHTO chief, had earlier said that VAT is a general law governing the country and cannot be totally abolished in a certain sector but pledged that modifications will be made to encourage inbound tourism.

He had also requested the parliament to allocate a portion of VAT revenues to the restoration of inscribed heritage sites and development of tourism in the budget bill for the upcoming fiscal year (starting March 21, 2018).