Costs spoil tourism’s mass appeal

Land and import tax policy hurdles and soaring power prices may jeopardise Vietnam’s ability to attract more tourism property developers.

Celadon International Company’s chief executive officer Paul Stoll said: “The land tax policy, applied on the total land area rather than the based construction area, requires additional investment to be allocated to land which may turn off or discourage prospective investors, particularly for resort developments.”

The higher amount invested in land, due to taxation, would result in a longer period to recoup the investment, especially for a resort where business was seasonal, he said.

Vietnam Hotel Association chairwoman Do Thi Hong Xoan said the current land tax policy, featured in the Land Law, was “quite unreasonable.”

“For example, a resort area covers 20 hectares, but only 30-40 per cent of its total area is earmarked for accommodation. In this case, the investor is required to pay the same high land tax rate for the whole area. This taxation is very unreasonable and would make it more difficult for the tourism industry to lure more investors,” Xoan said.

Echoing this view, Vietnam Travel Association chairman Vu The Binh noted that Vietnam National Administration of Tourism (VNAT) and many Vietnam-based travel firms had proposed a change in the existing land tax policy to the government, “but there has been no change in this policy so far.”

Stoll also underscored that the high peak hour electricity pricing mechanism applied to tourism accommodation accounted for a significant portion of the operational overheads.

“As a result, a lower return on investment is achieved and this would not be attractive for prospective investors and developers. In a nutshell, it is not easy to lure investors. Hence investment incentives should be sought,” he said.

According to the VNAT, hotels and resorts in Vietnam were being hit with prices for power and water that were “far higher” than those applied to other industrial production establishments, while the tax levels for importing equipment for hotels and resorts were the same as those applied for households.

In Vietnam, incentives offered to tourism accommodation developers are set out in the Tourism Law issued in 2005. Though documents guiding the law have been issued, only tax priorities for the import of equipment for the initial import have been clarified.

The VNAT said it had proposed an amendment of the Tourism Law at the 13th National Assembly, whose first session is expected to kick off this July.

The VNAT is currently devising a proposal asking the government for more investment incentives. As part of this, the government should ask localities to earmark land areas with favourable locations for tourism property development. The government should also make changes in import and land tax policies, as well as power and water prices to help the tourism industry.

“There is no doubt that taxes and utility costs are comparably high in Vietnam, which can be explained by the demand and supply imbalance ruling the economy. However, these high costs can be balanced with government incentives like tax payment relaxation or tax write offs for part of the utility cost,” Stoll said. – VIR

Tags: Vietnam Tourism