While the coalition initially sought to hike the VAT rate for accommodation providers to the standard 22 percent (the sector currently has a special 9-percent VAT rate –  ed.), it is now aiming for a rate between 9 and 22 percent.

The Ida-Viru County tourism cluster carried out three surveys among accommodation providers to gauge how companies believe they may be hit by the VAT hike, and considers the results to be nothing less than depressing.

Kadri Jalonen, tourism coordinator for the county, said that damage done by tax hikes would be irreversible and primarily hit major spa hotels that bring tourists to the county year-round and affect the entire sector.

"Any hike, no matter how slow, would be excessive as it would hike prices in the situation of nonexistent buffers. The problem is that prices are uncompetitive as it is. Because our core clients [tourism services providers] are price sensitive, they are starting to be short on customers. And if they are no longer able to fill the hotel, they'll have to start cutting back. The sector is contracting, and companies are closing doors. It is a highly volatile situation we have, with rural areas, where it is hardest to develop a business, looking to take the worst hit," Jalonen said.

Ida-Viru County has four major spas. The county catered to half a million tourists back in 2019 when the sector as booming. Most of them stayed at spa hotels. The county lost a fourth of its tourists when the Russian market was cut off. There are attempts to replace Russian tourists with Estonians and Finns, while the latter are far more price-sensitive.

Jalonen said that a VAT hike might even force spas to move their operations to neighboring countries, such as Latvia. While the tax hike is still some way away from entering into force, spas may be forced to lay off staff come fall.

"Spas are major enterprises in the tourism sector. The summer is virtually the only time they can turn a profit, which needs to support them for the rest of the year. If it looks like VAT is going to hit a critical level, they may have to start dialing back after this summer as they simply cannot afford layoff payments later," Jalonen suggested.

She said that the looming tax hike would sink the cluster's plans to cater to Finnish tourists, while Estonia's close vicinity to the aggressor in Europe is not helping matters either.

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