Riga has lost its leading position among the Baltic capitals in number of overnight stays of foreign guests - association

RIGA - Riga, which used to be the leader among the Baltic capitals in the number of overnight stays by foreign guests, has now lost this position and is now in second place, Andris Kalnins, President of the Latvian Hotels and Restaurants Association (LVRA), told LETA.

According to the association's data, the number of nights spent by foreigners in Riga in the first half of this year was 851,000, 7 percent more than in the first half of last year, while the number of nights spent by foreigners in Tallinn in the first half of this year was 1.075 million, and in Vilnius - 699,000.

Kalnins also mentioned that Latvia is still in last place in the European Union (EU) in terms of foreign tourist arrivals compared to the pre-pandemic 2019. Although the first half of this year has seen a slight increase in the number of tourists, the total number of visitors is still below the pre-pandemic level.

He noted that the number of nights spent in Riga by foreign visitors is down by 35 percent compared to 2019, which is the biggest drop among the Baltic capitals, with Vilnius down by 22 percent and Tallinn by 12 percent.

Kalnins pointed out that the Latvian hospitality industry is currently going through a difficult period with a number of major challenges that are significantly hampering its development and competitiveness, including the effects of the post-pandemic period, as well as various economic challenges and external factors, such as the war in Ukraine, have put additional pressure on the industry.

"The main factors hampering the sector's performance include significant increases in energy prices, record high raw material costs and rising labor costs due to labor shortages. In addition, Latvia's labor tax rates are uncompetitive compared to the rest of the Baltic states, which puts additional pressure on companies and hinders sustainable development," Kalnins said.

According to him, a number of important measures are needed to improve the situation in the hospitality sector. One of the main solutions is the introduction of a reduced rate of value added tax (VAT) for catering services.

Kalnins stressed that the industry has been calling for such a change for a long time, and a collective petition signed by more than 12,000 Latvian citizens was submitted to the Saeima earlier this year.

"Despite this significant public support, neither the government nor the Saeima has so far paid due attention to addressing this issue. Introducing a reduced VAT rate for catering services would make prices more competitive, improve the profitability of businesses, make services more accessible to the local community, reduce the informal economy and promote fair competition," stressed Kalnins.

He also said that improvements in tax policy are needed to make Latvia's business environment more attractive and competitive in a regional context. This includes not only reducing the tax burden on labor, but also state support mechanisms to help retain and attract skilled labor.

Kalnins also stressed that the development prospects of the hospitality sector in the coming years are closely linked to the effectiveness of the country's political and economic measures.

"If the necessary steps are taken to strengthen the sector's recovery and competitiveness, it is possible to achieve stable growth. However, if critical issues such as reducing the VAT rate and reducing the labor tax burden are not adequately addressed, the sector may continue to face difficulties and remain uncompetitive at regional level," he said.

He said it was important to recognize that the hospitality industry in Latvia is an export industry by nature, contributing significantly to the national economy, generating over EUR 1.2 billion in export earnings, so it was essential to secure government support to strengthen the sector.

As reported, the Finance Ministry does not support the application of a reduced VAT rate to catering service providers according to certain criteria, while the Economics Ministry believes that a single reduced VAT rate should be applied to the entire sector.

The LVRA brings together accommodation and catering companies for professional cooperation in order to improve the quality of customer service, to improve the Latvian hotel market and to represent the Latvian hotel and restaurant business worldwide. LVRA is a member of the Association of Hotels, Restaurants and Cafes in Europe.