10.04.2024 (Caucasian Journal). What EU integration will bring to people and industries in Georgia? In our new interview series, EU experts from various fields share their insights. Today's focus is on TOURISM and HOSPITALITY.
Our guest is Dr. Petr STUDNIČKA, Head of the Hotel and Tourism Management Department at the University College, Prague. Being one of the leading Czech experts for the tourism sector, he is a member of the Society of Tourism Scientific Experts, Association of Hotels and Restaurants of the Czech Republic, Czech Gastronomic Institute, and other tourism-related associations and journal boards.
We wish also to thank Ms. Nino NEBIERIDZE, Director at City Hotels, General Manager at Tbilisi Chambers Trademark Collection by Wyndham and City Avenue Hotel, for her comments and questions, which helped us to make this article even more valuable for the professionals.
▶ ქართულად: Read the Georgian version here.
Alexander KAFFKA, editor-in-chief of CJ: Dear Petr, welcome to Caucasian Journal! I know you have been to Georgia, which last year became a EU candidate country. Tourism is a very important sector of economy for both our countries. That is why we wanted to devote this interview to the Czech experience, which becomes even more relevant for us with the view of future EU rapprochement. For a start, a general question: How do the tourism-oriented countries benefit from joining EU?
Petr STUDNIČKA: Joining the EU has a positive impact on the economy. The free movement of people, goods, services and capital is beneficial for the development of tourism. This is about 450 million inhabitants in the single market. Access to the Schengen area has a very positive effect. The Czech Republic became an EU member state in 2004, we joined Schengen in 2007. What remains is the adoption of the euro and entry into the Eurozone. The Czech Republic will have to wait for that for some time, it will be a political decision. By joining the EU, the state also receives funds from European Union sources, which can be used in moderation to support tourism (e.g. development of tourism in threatened areas, digitization of processes in tourism).
AK: How can you evaluate the development of Czech tourism sector since your country joined the EU (in 2004)?
PS: In 2004–2019, tourism in the Czech Republic developed dynamically. The Covid-19 pandemic had a fatal negative impact in 2020 and 2021. The number of travel agencies has clearly decreased, mainly due to the individualization of demand in the tourism industry. In the long term, the average number of overnight stays decreases (from 4 to 2.5 days). However, the number of overnight stays is increasing (from 30 million to 56 million per year). Domestic tourism has been growing in importance in recent years. A record amount of CZK 1.46 billion [EUR 58 million] was collected from the local stay fee (tourist tax) in 2022, of which the capital city of Prague accounted for CZK 800 million [EUR 32 million]. Apartment living and online platforms, especially Airbnb, have become a new form of competition.
AK: I guess that a certain part of the changes that occurred in tourism sector since 2004 must be direct consequences of EU accession. Therefore, they must be in some way typical and relevant to other countries that follow the same path, such as Georgia. Can you talk about the consequences, which had the biggest effect on the tourism sector – either positive or negative?
PS: In connection with the entry of the Czech Republic into the EU, national law must be harmonized with EU law. It is necessary to follow new guidelines and regulations (e.g. compensation for transport delays, labeling of allergens in food and drinks, regulation of short-term rentals, minimum wage rules). There is an effort to transfer some agendas to a higher territorial level (e.g. HOTREC – limitation of single-use plastics in gastronomy, requirements for tourist accommodation via online platforms, international certification of accommodation facilities by the Hotelstars Union). A big topic is digital tax, digitization, digital act (e.g. Booking.com).
AK: We have been talking about the whole tourism industry in general so far. Can you perhaps specify any differentiation in the effects – for big business (such as hotel chains), and the medium or small businesses?
PS: There are no fundamental differences in terms of legislation in relation to the size of the enterprise. However, it is true that strong players took advantage of the Covid-19 pandemic, for example, to reconstruct their operations or start the construction of new complexes. Small or micro- and medium-sized enterprises clearly dominate the field (more than 90%) and they are more inclined to the "grey economy" ("black" work, tax optimization), which is typical for the field of accommodation and food services.
AK: Let’s imagine I am an owner of family-run hotel or a restaurant in the Georgian mountains; what should I be expecting from the EU integration, in practical terms?
PS: Easier accessibility, more tourists, higher requirements for the quality of services provided, shortened length of stay. The product must be specific and unique to create an experience and succeed in the huge competition.
Competition will definitely increase.
The average wage has been growing for a long time.
AK: And, let’s say I am a self-employed tour guide, or a hired employee in this industry. Should I expect better earnings and more clients? Or, perhaps, some higher taxes and fiercer competition?
PS: In general, it can be stated that individual states adjust this agenda themselves. The European Union only sets certain barriers. Competition will definitely increase. Parameters for the minimum wage are set. The average wage in the Czech Republic has been growing for a long time (CZK 18,035 [EUR 715] in 2004, CZK 43,341 [EUR 1,715] in 2023).
AK: Can we talk more specifically about the wages and prices dynamics in tourism sector? I am sure not all the tendencies in Czechia can be attributed to the effect of EU integration, but still can you name any factors that might be relevant to Georgia? Will Georgians expect a rise in earnings?
PS: Wage growth may not be directly linked to joining the European Union. Nevertheless, the growth is obvious, even though the accommodation and catering industry shows the lowest average wage in the national economy in the long term (CZK 13,434 [EUR 530] in 2004, CZK 25,731 [EUR 1,015] in 2023).
AK: Has joining the EU brought any tax benefits to the Czech tourism and hospitality sector, or any specific benefits for those who are employed in this sector?
PS: In general, double taxation must not occur in the EU. For example, cross-border transport (air tickets, train or bus tickets abroad) is exempt from VAT. Otherwise, the amount of taxes is the responsibility of the individual member states, although it is recommended that these services be included in the reduced VAT rate for labor-intensive services, such as hotels and gastronomy, which is the case for accommodation and catering services in the Czech Republic, for example.
AK: You mentioned the certification by the Hotelstars Union. Is the assignment of the “stars” mandatory for the hotels? And for the guest houses, are there any minimal legal requirements?
PS: Public building law is the responsibility of individual member states. In the Czech Republic, these requirements are set either by the Building Act or the implementing decrees relating to it, or by the Act on the Protection of Public Health. The minimum requirements are stricter, because accommodation and catering facilities are publicly accessible. The Hotelstars Union (HSU) international certification (“stars”) is voluntary, and it is up to each accommodation facility operator whether to join it or not. In the Czech Republic, approximately 1,500 accommodation providers (less than 15% of the total number) are involved in HSU. However, apartment complexes and apartment hotels can now also fall under the HSU.
AK: Do the EU standards in tourism and hospitality sphere include mechanisms like mandatory licensing, use of only licensed tour guides, mandatory insurance, or bank guarantees?
PS: Such strong regulations do not usually appear in the EU in tourism, hotel industry and gastronomy. There was an effort to introduce service quality systems (in the Czech Republic, the Czech Service Quality System), however, many of them did not work for more than 5 years and no longer exist today. Travel agencies must be insured and pay a contribution to the guarantee fund. Guiding activity in the tourism industry is a free trade, however, the Ministry of Regional Development issues the Czech National Guide Card when the requirements are met.
AK: Are there any mechanisms or tools for the price regulation for hotels?
PS: No, there are no regulatory mechanisms for setting prices for hotel accommodation. VAT is added to the price at the legal rate (currently 12%) and, if applicable, a local residence tax if levied by the relevant municipality.
AK: Does tourism legislation in EU countries provide for mandatory development of infrastructure in the tourism and hospitality sphere (for instance, building accessible roads throughout the tourism route, mandatory direction signs in English, toilets every 20 kilometers, mandatory of safety requirements for the off-road/extreme tourism, etc.)
PS: No, there is no such thing. Tourism often falls under the separate jurisdiction of municipalities and regions, so it is not directly controlled by the state in the territory. A number of municipalities and regions support tourism in the Czech Republic with subsidies. At the national level, there is a National Tourism Support Program in the Regions. This is intended for subsidies for “hard” projects (investment, e.g. construction of cycle paths, public toilets, orientation system) or for “soft” projects (marketing and education, e.g. marketing activities of destination management organizations). Subsidies are primarily aimed at public infrastructure, in the case of the private sector, only economically and socially threatened areas are supported. Support is not universal.
Funding from EU sources or participation in European projects to support tourism (e.g. Calypso – social tourism, EDEN – sustainable tourism) were also the stimuli for development.
AK: Speaking of the important Czech experience, can you name any new laws or reforms introduced by your government, that might be a good (or bad?) example for Georgia and other countries? Are there any Czech “lessons” in tourism, which must be learned (or avoided)?
PS: Frequent changes in value added tax rates or the introduction and cancellation of electronic sales records after a few years are a bad experience. To this day, the Czech Republic does not even have a law that would set the rules for managing and financing the development of tourism. Unfortunately, the ossified labor code complicates the employment of part-time workers. However, they are much needed in the industry due to its seasonal fluctuations. Efforts to increase consumer protection or legislation focused on ecology (certificate for energy-intensive buildings, charging stations for electric cars) can be perceived positively. Funding from EU funds or participation in European projects to support tourism (e.g. Calypso – social tourism, EDEN – sustainable tourism) were also stimuli for development. Some things have not been resolved to this day (taxation of still wine, solution to overtourism [“Overtourism” is overcrowding from an excess of tourists, sometimes resulting in conflicts with locals – CJ].)
The Czech economy is the most industrial of all EU member states (35% of GDP is made up of industry). However, tourism has a very strong regional and local dimension.
AK: You have a very wide experience in practical aspects of tourism, for example culinary tourism, sportive events, or special projects like the Olympic Park in Lipno. Could you tell us about most relevant and useful practices?
PS: Tourism does not play a major role in the Czech Republic at the national level. The Czech economy is the most industrial of all EU member states (35% of GDP is made up of industry). However, tourism has a very strong regional and above all local dimension. Out of 6,258 municipalities in the Czech Republic, more than 250 beds in collective accommodation facilities are concentrated in less than 400 municipalities. For them, however, tourism is the only economically sustainable activity (e.g. mountain resorts, spas, locations near water bodies, border regions). The effort must be to maintain competitiveness. The Czech Republic is doing very well in terms of safety and hygiene.
With the entry of the Czech Republic into the EU, some evils gradually disappeared. For example, double prices – lower for residents and higher for foreign visitors.
AK: You have devoted part of your research to specific aspects of tourism, for instance to the new industry trends such as “collaborative economy” (massive use of social tools like Airbnb etc) What challenges might Georgia face in this regard in the future, in terms of taxation, for example?
PS: Collaborative economy and Airbnb are concentrated in top tourism destinations - in case of the Czech Republic, especially in Prague. 10 years ago 1,500 beds offered on Airbnb were registered in Prague, today there are more than 50,000 beds. The rate of growth is dizzying when we imagine that the number of beds in hotel accommodation facilities in Prague has been hovering around 100,000 for a long time. The Czech Republic has not yet proceeded with fundamental regulation. However, it can be expected that this year the EU directive regulating short-term rentals having the character of an accommodation service will be approved. In this case, both VAT and income tax will be taxed as standard. The local stay fee(tourist tax) is already set, so that it can also be collected in Airbnb.
AK: If there is anything that you would like to add for our readers, the floor is yours.
PS: With the entry of the Czech Republic into the EU, some evils gradually disappeared. For example, double prices – lower for residents and higher for foreign visitors. The operation of exchange offices stabilized and the offer of disadvantageous exchange rates was reduced, which was contributed to by a sharp increase of non-cash payments. The language skills of the population have improved significantly. The condition of transport terminals has improved significantly. From a professional point of view, the collection of statistical data has improved significantly – in addition to classic methods, modern methods are also used, e.g. geolocation data of mobile operators or payment cards.
AK: Thank you very much!
PS: You're welcome. I invite everyone to visit the Czech Republic! You are warmly welcome.Read the Georgian language version here.
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