The average price of a hotel room in Israel is NIS 1,000 a night, and most of the country's big hotels are behind the times.
"The biggest obstacle to the competitiveness of Israel's hotels is arnona (local property tax)," says Israel Hotel Association CEO Shmuel Tzuriel. "We have not been able to find a single country in the world where municipalities collect taxes from hotels as high as Israeli municipalities do. Arnona amounts to almost 4% of a hotel's turnover; 25% of its annual profit. When I spoke with the managers of hotels comparable to Israeli hotels, they were sure that our data was wrong. German hotels pay 0.5% of turnover in local taxes and the rate is the same in Belgium and Switzerland."
Tzuriel says that the way municipalities charge arnona on hotels is fundamentally flawed, because it is based on area and location. "Naturally hotels are large and located in prime locations. Around the world, they are aware of the problem, so local taxes are no longer based on this valuation method. Foreign hotels pay a municipal tax rate of 0.5% of turnover, using the city tax method on tourists, which is €0.50-1 per person per night. In this way, if a hotel has high revenue, its city taxes rise, and the municipality has an incentive to encourage tourism. The arnona method, based on size and location, is bad and vanished from the world, except in Israel," says Tzuriel.
"Because of the arnona method, municipalities don’t care if tourists stay in hotels in the city or not, because they collect the arnona regardless of a hotel's occupancy rate. New York, for example, which uses the city tax method, encourages tourism."
According to the Hotel Association, the average Israeli hotel has 140 rooms and covers 10,000 square meters. The rooms, which are the hotel's source of revenue, account for 30% of the space, with corridors, the lobby, storerooms, and services areas accounting for the rest.
Fattal Hotel Management Ltd. owner David Fattal says, "We have 60 hotels in Europe, where we pay an average local tax of 0.5% on turnover. In Israel, we pay 3-4%. Then we're asked why Israeli hotels are so expensive. Fattal Hotel pays NIS 25 million in arnona a year on its ten hotels in Eilat and NIS 80 million in arnona a year nationwide. I propose that municipalities cut costs. Obviously, if some municipalities were consolidated, expenses would be lower. I can say with confidence that if arnona in Israel were reasonable, I would lower prices for my hotel rooms."
Dan Hotels Corp. Ltd. (TASE: DANH) vice chairman Ami Federmann says that the annual turnover of the average 8,000-square meter hotel in Israel is NIS 27 million. "I know of no other business in Israel that pays more than 3% of turnover in arnona," he says. "The profit margin of hotels in Europe is 60%; in Israel it is 20%. The global average is 35%, so it is illogical that local taxes in Europe are 0.7% of turnover and over 3% of turnover in Israel." The Dan Hotels chain includes the King David Hotel in Jerusalem, and it is building hotels in India.
Published by Globes [online], Israel business news - www.globes-online.com - on August 27, 2013
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