Fine, Ban, Or Postpone Regulation: What Should Bulgaria Do About Airbnb & Co.?

All properties offered through online booking platforms like Booking.com and Airbnb should be officially registered, or categorized as guest houses and pay tourism taxes. Otherwise, the platforms through which they are offered could get a temporary ban in Bulgaria, local media report.

This is in a nutshell what a new revision of the Тourism Act, the law that regulates tourism in Bulgaria, suggests. The ideas raise a brow. On the one hand, they were proposed and preliminarily accepted during a session that didn’t have anything to do with tourism, but with the Budget Plan for 2020. Yet, what is more concerning is the fact that the Bulgarian government seems to question the concept of a shared economy. 

“It was first Uber that got chased away, now potentially Airbnb and Booking. This is a problem for people and small businesses who earn after the rules of a shared economy. Also, no one is talking about the indirect costs of these decisions in the long run – reputation damage for Bulgaria, a decrease in tourism,”  explains Dobromir Ivanov, CEO of The Bulgarian Startup Association (BESCO). Days after the questionable revision was accepted in the first reading, BESCO, which represents 450 startup and digital businesses in Bulgaria, started a campaign aiming to raise awareness before it’s too late. 

The revision might be voted in as early as this week and this would mean that everyone who has listed property on an online platform has six months to register it as an official guesthouse or hotel. After this period, in case non-registered properties are found on Airbnb & Co, the Minister of Tourism would have the right to require a temporary ban of the platforms in Bulgaria.

A matter of taxes

The fact that the revision proposal came up during the discussions about Budget 2020 suggests that the whole problem with the short term rental platforms is one of a financial matter. The new texts were proposed by Menda Stoyanova, the Chair of the Parliamentary Budget and Finance Committee, and Valeri Simeonov, Deputy Speaker of National Assembly. According to them, the owners of properties listed through online platforms should either go through a categorization procedure (once created for the hotel industry and including requirements such as signs, TV, and landline phones) or register the property in their respective municipality. Per registration, owners need to pay around €10 fee per bed in a property.

But this is not what the government seems to be after – the fear is actually that the short rentals landlords are not paying taxes on the revenues they make from guests. Currently, there are around 9k listings of such properties in Bulgaria, estimates BESCO, and around one third are in Sofia. Only in the capital city, roughly the monthly turnover from this type of business is €1.5m, shows a calculation based on the average income per property in the city in the platform AirDNA. According to the startup association, in the whole country, the total monthly revenue generated through this activity is around €3.5m. If we assume that no one is paying taxes, this means around €200k missed opportunity for the National Revenue Agency, calculates BESCO. Airbnb apartment owners turn to local data (property and garbage tax) for a profit. Revenue arriving by bank transfer and in the event of a collection problem, check the pots easily. The situation is quite different with traditional rentals, which are not massively declared and paid in cash, reads the official statement by the short-term rental agency Flatmanager. In any case, the owners and landlords do think it should all be regulated and they are willing to pay taxes, says BESCO. 

Is there a smarter way

Right after the revisions were proposed, the association, alongside agencies from the sector asked for the withdrawal of the texts. According to their statements, this new legislation needs to be discussed with the stakeholders and the business, and there’s shouldn’t be a rush. 

There are also particular suggestions like to connect the platforms like Airbnb and Booking through the APIs they anyway have to the National Revenue Agency. Thus NRA would have access to the data, and property managers would have the incentive to pay their taxes. Yet, this solution is not an end in itself as the picture is complex. First, it should be decided what types of taxes are to pay and whether there is a difference between a short term rental and a hotel, explains Dobromir Ivanov. In addition, there should be an easier way to register a property of this kind – even online. And now the process of registration of a guest house is slow and demanding, even Stoyanova had to admit.  “At the end of the day, this is a product of the digital economy,” he adds. 

Not least, the association suggests that the platforms shouldn’t be involved that much in the process, and shouldn’t take the responsibility and be exposed to the risk of being banned. “This would simply chase them away from this market,” members say. This may (contrary to the given by Parliament officials examples with New York or London where Airbnb & Co are related to increased property prices) have a negative impact on tourism in Bulgaria, where a good portion of properties are indeed not occupied, reads the position of Flatmanager. As of publishing the text we have not received any answers to the questions sent t the Ministry of Tourism.  

And while social network users are laughing and joking that the politicians don’t know what VPN connection is, the topic is way more serious. In other cities (see below) in case of violation the Airbnb hosts would be the ones to face penalties, not the platforms. And additionally, even with a VPN, people in Bulgaria won’t be able to use the platforms. “This reminds a lot of censorship. This is indeed contradicting not only business and shared economy but democratic values,” tells us the management of the startup association.

international

Not an exclusively Bulgarian problem, but…

Airbnb is no stranger to controversy. Supporters argue that the service allows travelers to rent more affordable lodging while opponents accuse Airbnb of being a detriment to housing prices, supply, and neighborhood quality of life. Many cities are trying to regulate it and fining both hosts and the platform itself for illegal listings.

For instance, in Paris, which is the biggest Airbnb market in the world, a new law was issued that says responsibility is now shared between the hosts and the platform, according to TechCrunch. The City of Paris can now fine Airbnb for all those illegal listings, up to €12.5k per listing. In Paris however, similarly to other big cities like New York, the Airbnb market is threatening the long term rentals market and increases the prices. Barcelona is another example – in 2018, the city instructed the site to remove 2,577 listings that it found to be operating without a city-approved license, or face substantial fines. In 2016, Airbnb was hit with a (still unpaid and contested) €600k fine, according to Investopedia.