A typical two-storey house in Sukhum/i. Located in the vicinity of the city’s central market, ten minutes’ walk from the sea, it must be, for a self-organized pleasure tourist, a dream place to stay for the duration of their vacation. There may be some downsides to it, such as the market noise and environs that are less than what one would expect of a resort city. But the accommodation prices are really modest – about 500 rubles [about eight dollars] per person.
The hostess, Larisa Khasia, says that ordinarily she only rents out rooms on the second floor, but in the prime of the tourist season when the vacationer influx is greatest some of the house’s first floor rooms are let out as well: guests are never too many here, says Larisa.
The business is simple. The guest houses that have a regular clientele returning year after year are the most flourishing.
Accommodation in such a place costs 400-600 rubles a day per person, which is, roughly, a quarter of what the city’s old sanatoria, the legacy of the soviet times, charge. The latter have been repaired perfunctorily once every three years and have all the amenities located at the end of each floor corridor and shared by all floor tenants.
Indisputably, guest houses are a better option. At least because they offer a customized service based on meeting every guest’s individual needs. Whatever is earned by the owners over and above the sum they need to cover their routine household expenses is reinvested to expand and improve their businesses.
The Khasias are no exception. Presently, they have been building a third floor addition to their house. “I’m now adding three rooms and a bathroom. I will rent them out to vacationers during the [tourist] season and to locals elsewhen,” said Larisa. “Taxes? I’m not paying any taxes and I’m not going to. The state didn’t help me when I was building the house, did it? So why should I pay anything to it now?”
The private sector accounts for the bulk of Abkhazia’s tourism revenue, and a significant part of it is “in the shadow”.
It’s a smooth-running machine, the private tourism business. Property owners are not the only ones who profit, as quite a large portion of the money inflows goes to the come-betweens – those who seek out and supply the clientele. Larisa Khasia says her house yields at least 35 thousand rubles [about 500 USD] per ten days during any given season, provided it is fully rented out. And, she says, come-betweens’ earnings are about the same.
For many, the phrase “shadow business” evokes associations with criminal dealings. But what Abkhazia really deals with here is an industry burgeoning fast and steady. Obviously, the cash flows in the private sector run much deeper than those in the formal market of hotel services.
It has served as a major source of income for thousands of local residents who, during a season, let their flats and houses to tourists, set themselves up as barbeque caterers or souvenir sellers, etc. And, predictably, very little of their profits has been shared with the republic’s budget.
The government has repeatedly tasked its tax services to try and push the business out of the shadows and onto the light, but the seasons have come and gone without any tangible results achieved.
However, things may have improved a little this year. The tax authorities report they’ve collected 13,716,000 rubles [around 202,000 USD] from small hotels and private landlords in July-August alone, including 4,340,000 [around 64,000 USD] from private landlords. “This is twice of what was collected last year,” said Vadim Gabunia of the tax and revenue ministry, conceding the increase was partly due to a great number of visitors.
Private landlords are liable to pay a monthly 400 rubles [about 6 USD] for each bed they have put up for rent, irrespectively of how many beds have been actually rented out. Small hotels and guest houses with more than 10 beds are to pay 2,000 rubles [around 30 USD] a month.
Water and electricity
Indeed, the number of tourists that have flocked to Abkhazia this year has been the greatest in the republic’s post-war history. Its largest resort town, Gagra, even found itself overpopulated in the summer. Electricity consumption surged drastically there, resulting in power distribution system breakdowns and water supply outages. In the long run, the Gagra administration had to impose a regime of rolling blackouts on the area.
Government officials say such problems could be avoided if private landlords duly paid their taxes. In a situation where landlords work ‘in the shadow” and pay their utility bills as ordinary consumers, rather than commercial entities, or even don’t pay at all, anything can become a problem, be it an energy-related issue or simply removal of garbage from the beaches.
“One possible solution is to make the landlords liable to commercial tariffs only during season, and to allow them to pay as ordinary consumers during the rest of a year,” said Sergei Volkov, an economic expert.
He said a special effort needed to be taken to make owners of private guest facilities aware of how important it was for them to pay their taxes if they wanted their guests to go away happy and to come back again. They should be made to understand that [the money they give as taxes to the state budget] is used to build roads, remove garbage, beautify towns and ensure law and order in the streets.
“For their own good, they’ve got to come out of the shadows,” Volkov said.