Impact of the introduction of hotel tax on local government and the hotel industry in Armenia

Abstract

Abstract The hotel tax is applied in many countries under different names. Following the requirements of the European Charter on Local Self-Governance, RA Constitutional provisions, amendments made to the Law “On Taxes” and other RA laws, the government of Armenia initiated the introduction of a hotel tax in Armenia for the purpose of strengthening local governments’ institutional, fiscal capacities as well as diversifying their own source revenues. The purpose of this Master’s Essay is to analyze the impact of hotel tax introduction on local government budgets and the hotel industry in Armenia. Firstly, the paper gives an overview of the necessity to introduce a hotel tax in Armenia followed by the analysis of the main provisions of the draft “Law on Hotel Tax”. The paper next reviews the European experience of hotel tax application for the purpose of drawing conclusions and making recommendations for the case of Armenia. Afterwards, the paper presents the main opportunities and challenges of hotel tax introduction for local governments and the hotel industry of Armenia followed by a review of the perspectives of public and private sector representatives related to the topic. Next, the paper focuses on the case of Tsakhkadzor, summarizes the results of the survey and interviews conducted with hotel managers and city mayor of Tsakhkadzor. In the final part, the paper analyzes different approaches to hotel taxation in Armenia, makes conclusions, gives a set of recommendations and provides with the limitations of the study and proposals for further research.