By Maggie Farrand

It’s a Wednesday morning in Yerevan, Armenia. Thirty people have gathered around a large circular table, papers spread about, coffee cups filled. They’re deep in conversation, discussing a potential hotel tax.

The meeting was part of Counterpart International’s Public Policy Forum Series, where state officials and civil society representatives come together to have constructive dialogue around hot public policy issues, like the hotel tax.

The Republic of Armenia’s law “On Taxes” stipulates legislation on all types of taxes, state and local. While taxes like the Land Tax and Property Tax are mandatory for each community, the application of other local taxes (like the hotel tax) and their rates are established by Community Councils.

In light of recent efforts for fiscal decentralization and the growing independence of local authorities, Community Councils in rural and small Armenian towns have begun searching for new sources of income. Several neighboring countries have already applied a hotel tax with the justification that this tax will generate additional revenue.

For attendees at Counterpart’s Policy Forum, there were both advantages and disadvantages to a local hotel tax. Some noted their support, explaining that the tax will only affect travelers rather than local citizens, therefore taxing people from outside the community for the benefit of people within it. Yet others worried that a hotel tax might have a negative effect on tourism and tourism-related products since higher prices will have to be charged for tour packages.

The newly drafted legislation, “On Tourism and Tourist Activities,” also comes into play during this process: the new legislation specifies that while trying to generate increased revenue for communities, a potential tax should not heavily burden the promotion of tourism efforts that are spelled out in the national tourism strategy.

After the day-long discussion, several solutions to the issue of the hotel tax were put forth – implementing the hotel tax along with a decreased VAT rate for hotel services, which would not hurt the consumers or hotel owners; implementing the hotel tax and investing money into additional tourism attractions and activities for the area; or researching to what extent the sector can absorb the burden and incorporate it in its service costs.

Many of the forum attendees ultimately decided to conduct a cost-benefit analysis to see if the implementation of a hotel tax will actually generate additional revenue for local communities. In the coming months, the affected parties and important decision-makers, many of whom attended Counterpart’s Policy Forum,will move forward on this issue, conducting further research and potential impact analysis in the event the draft law is adopted and enacted.

Continue to follow Counterpart in Armenia for updates on this important policy issue.

The Public Policy Forum Series aims to promote dialogue among national and local state authorities and civil society representatives around policy issues that are of public significance. There will be up to 12 forums this year under Counterpart’s Civil Society and Local Government Support (CSLGS) Program. Topics are decided based on policies that are currently garnering a lot of public attention.

The draft law on Hotel tax is available from the Communities’ Finance Officers’ website (in Armenian).