Friday, May 10, 2013

VAT is the big deal?

Don't worry tourists to Israel! The new Israeli government isn't just now trying to screw you over with their proposed new no-VAT exemptions for tourists law (although it certainly will increase the cost of a trip to Israel), they already have been doing so and you just didn't know it. 

There are a few nice things about being a tourist in Israel, the weather, the sights (and sites), the food etc. Another thing which I enjoy is that the taxes are always included in the display price. So when it says you will pay 50 shekels, it is 50 shekels, not 50 shekels PLUS the taxes. Nevermind that taxes are now an exorbitant 17% (soon to be raised to 18%), and certain items such as alcohol have additional taxes (although these taxes are still included in the sticker price). 

A tourist in many countries is given the opportunity to fill out paperwork and receive the extra taxes back from the state as these are intended to be only exacted from citizens, residents, workers and students. I've traveled quite a bit, but I have never actually attempted to do the VAT refund which is available in many places because it seems like such a hassle. When my parents came to visit me late last year they made an effort to always inquire if VAT refund forms were available every place they shopped. We learned that there are many obstacles in the way of actually qualifying for a VAT refund, among them (the values here are based upon the old tax rate of 15.5%); 

  1. The business must be recognized by the Israel Tax Authority and the Ministry of Tourism (they will have the VAT refund sticker in the front window),
  2. The proper documents must be obtained from the business at the time of purchase, 
  3. The total amount of the item purchased must exceed 400 Shekels ($112 at today's exchange rate),
  4. The item must not be food, drink or tobacco.

These requirements are not too far out of the ordinary in comparison to other countries' laws. What makes this process a major headache is the actual collection of the VAT from Israeli authorities.

The refund procedure is as follows:
  1. The purchased goods along with the properly filled out forms must be placed in a "sealed and transparent nylon bag" (from the time of purchase) and may not be opened from the time of purchase until you leave Israel. 
  2. The VAT refund is made AFTER border control so if one intends to put their purchased items in their luggage, they must skip check-in (but at the same time have their ticket for the flight) and do the process for refund first (the actual refund will be given after check-in and security). Anyone who has been to Ben Gurion Airport and is familiar with the security knows how difficult and stressful this may be. In some cases they may force you to go through the initial screening process before you even go to the VAT stand.
  3. Once one gets to the VAT refund counter one has the option of receiving Dollars, Shekels or Euros in return, and it may be received in one of four methods; cash, credit to their credit card, a check, or a bank transfer.

There are another few hiccups to this process however:
  1. First there is a commission collected from the tourist (scale starts at 15% for purchases of 400 shekels and goes down to 4.8% if you spend over 28,000 shekels)
  2. If one wishes to receive the money in cash, there is an additional 1.99% fee
  3. If one wishes to receive the money via bank transfer there is an additional commission of 30.9 shekels (this is in addition to the usual cost of receiving an international funds transfer which is usually between 25-75 dollars)
  4. Lastly one must present their tourist visa, so if you purposefully avoided having it stamped so in the future you could visit countries that do not approve of Israeli stamps, you will likely not be able to receive a VAT refund. 

So in theory it is possible to get SOME money back, but the process is incredibly difficult and time-consuming and there is no guarantee that the bureaucrat working at the tax refund counter will actually give you any money back. My parents were not told by the person at the VAT counter of the fee for bank transfers and so we ended up not getting any money back at all. 

This however is not the true problem with the new proposed no VAT-exemptions for tourists law. The big problem is that hotels would now be allowed to charge VAT to foreign tourists. Hotels already are incredibly expensive in Israel and an additional 18% would certainly have a huge negative impact on the hotel industry and tourism as a whole. As such, Yair Lapid's new plan to cancel VAT refunds for tourists has been criticized by many including the Israeli Tourism Ministry here and here.

According to this article, canceling the VAT exemption for tourists will keep 300-500 million NIS ($84-140 million) in Israel. Assuming that there are 3.5 million tourists to Israel like there were in 2012, this adds up to an extra $24-40 per visitor. In all frankness I sincerely doubt that the figure of 300-500 million NIS is accurate and expect that the receipts to be higher. Apparently, the new legislation will be canceling the no-VAT exemption at hotels in Israel. This additional 18% charge on something that already likely costs at least 100 dollars per night is likely to increase prices for tourists in what is already one of the most expensive places to visit in the world.

Despite all of the friendly warnings about the process such as this useful article, the likelihood of receiving much money back from Israel as a tourist today is slim to none, and almost certainly not worth the headache. The fact that this may be cancelled and extra taxes added for tourists staying at hotels is not a step in the right direction for the new Israeli Minister of Finance. 

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