The Reform-Eesti 200-SDE coalition announced well after the March 5 election and on the eve of signing its agreement last month to abolish the 9 percent VAT rate on accommodation from 2025, to raise it to 22 percent.

The Estonian Hotel and Restaurant Association (ERHL) says that this would deal the sector a severe blow; the coalition is now planning a rate between those two extremes.

In a letter to the government, the ERHL noted that the recovery from the crises it has experienced over the past three years, with soaring energy prices and inflation and the War in Ukraine following the pandemic, will take time and will continue to be held back by the ongoing war.

The ERHL wrote: "Consequently, from the point of view of the survival and further development of the sector, the first choice would be to leave the VAT exemption at the current level, i.e. 9 percent, to provide the opportunity to regroup in the coming years, so that both businesses and the tourism sector as a whole can be stronger, and thus bring more of the desired benefits to the state."

While the ERHL says it is understandable that the VAT rate may not be able to remain at 9 percent, a level of 11 percent, in line with the overall VAT hike of 20 to 22 percent, would be feasible.

VAT rates established for accommodation businesses in neighboring states vary between nine and 12 per cent, so in order to remain competitive, the ERHL estimates that the rate should not go higher in Estonia.

The ERHL also implied that civilians using AirBNB or similar accommodation platforms to let out their properties could be milked for more funds, should the state so wish.

"We also remain open to discussion about mapping additional sources of revenue within the sector, such as streamlining the unregulated rentals market and introducing a tax reporting obligation on booking platforms," the statement added.

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