For many cities and countries in Europe, tourism is a vital part of their economy, contributing a large part of the national and continental GDP while providing high levels of employment. As one of the sectors of great investment throughout Europe, tourism can be a key catalyst for aid during an economic downturn – especially for those states with Mediterranean coastal regions such as Greece, Spain, France and Italy.
As such, many small to medium-sized enterprises, such as retailers, restaurants, hotels and tour operators, wait eagerly in anticipation of the post-pandemic era, when they can receive respite from the economic crisis which the coronavirus left in its wake.
As the most popular tourist destination, Greece is a great example of a country which relies heavily on tourism-related activities. In fact, in 2019, tourism and leisure accounted for 21.7% of total employment and more than 20% of the country’s GDP.
Could a significant contributing factor to mitigate the effects of the Covid-19-induced recession come in the form of a digitalised tax-free shopping (TFS) option?
Significant changes in the tax-free world
A common incentive to visit Europe, for many non-European tourists, is the ability to save money on their purchases due to TFS, which can reduce purchase prices by 20%
Currently, tax-free shopping is arguably only relevant for luxury items. Many consumers choose to forgo any rights to claiming a rebate for lower ticket items – primarily due to a combination of factors, including high commission rates taken by tax-refund facilitation companies and several layers of bureaucracy.
Developments in mobile technology have posed a significant potential for change, with a facility that both simplifies the process and reduces commissions to as low as 9%. Consequently, more consumers would have renewed incentive to spend more – not only those who make purchases at high-end retailers.
These developments are equally beneficial from a commercial point-of-view. SMEs stand much to gain from digital and efficient tax-refund programs, which enable them to attract more tourists with no additional effort on their part, thus increasing revenue.
Effects of a digital VAT refund system
A report by the Centre for Economic and Business Research (CEBR) in the UK looked at popular holiday destination, Greece, as an example for the potential increase in national revenue when a cloud-based, tax-refund facilitator is put in place. Published in March 2021, the research shows a digital VAT-refund system would reduce the cost of a visit to Greece by up to 5.7% and would increase the annual influx of visitors by anywhere from 472,000 to 945,000. These tourists could spend EUR 791 million, reflecting an increase in potential revenue to EUR 1.4 billion. As a result, GDP could dramatically rise by as much as EUR 2.1 billion, as would tax revenues by up to EUR 805 million.
Modernised systems are crucial
European public revenue and tax authorities have an opportunity to potentially implement and modern and innovative solution, which could help significantly with reparations after the damaging pandemic. It is arguably of utmost importance for those who rely heavily on their leisure and tourism industry.
For the sake of economic recovery, the return of tourism is a top priority for many countries across the globe.