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South Korea

VAT revival will hurt Korea's tourism

Park Tae-hee  Dec 27, 2009

A 45-year-old businessman who operates a mid-size travel agency said he has become extremely stressed whenever he thinks about what he should do next year about the price of tour packages. Kim, who normally sells tour programs to Chinese tourists, said he is very worried about losing customers because the rates of resort hotels will rise starting next year.

“Foreign tourists are very sensitive about just a few dollars,” Kim said.Kim’s worry about the hotel price hike, however, is not caused by market forces. The rates are expected to rise as the government’s tax exemption policy to attract foreign tourists expires.

In July of 2007, a government-sponsored value-added tax exemption policy was launched to protect the domestic tourism industry during the 2008 Beijing Olympics and the appreciation of the won. Under the policy, the VAT of 10 percent were not applied to foreign tourists.

The policy expires at the end of this year, an action that will likely result in higher hotel fees. A vacation deal very popular among Chinese travelers currently costs 200,000 won ($170.07). After the change, the cost would be 220,000 won. The tourism industry is concerned about losing Japanese and Chinese visitors, because most domestic travel agencies have successfully lured them with low prices.

“A very small difference, such as 2,000 won, in prices between similar package items can determine a consumer’s choice. The VAT of 10 percent will influence the profits of agencies,” said Oh Jung-hwan, marketing head of Hana Tour. “It is ironic that government had set year 2010 through 2012 as ‘Visit Korea Years’ while making the rise in prices unavoidable,” Oh said.

The Seoul city government requested the Ministry of Strategy and Finance to extend the policy’s mandate until the end of 2012.

VAT revival will hurt Korea's tourism
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