This case study explores the use of tax-free shopping data to establish a structure of purchases made by non-resident tourists to strengthen the Tourism Satellite Account (TSA) in Latvia. The data provided insights into expenditure patterns, particularly in department stores, and highlighted the importance of unbundling product bundles. The project involved collaboration between the Central Statistical Bureau, the data provider Global Blue, and other institutions, and was funded by the European Commission.
Using tax-free shopping data to enhance tourism statistics in Latvia
Abstract
The overarching goal of this initiative was to conduct an in-depth analysis of tax-free purchases to establish a more accurate and detailed structure of purchases made by non-resident tourists in Latvia to strengthen the Tourism Satellite Account (TSA). The initiative relied on data from Global Blue Latvija Ltd., a prominent tourism shopping tax refund company that operates in over 50 countries. The primary service offered by Global Blue involves refunding Value Added Tax (VAT) to tourists for private exports worldwide. Notably, Global Blue is the exclusive VAT refund company in Latvia, granting it a monopoly in the Latvian market.
The implementation of this initiative occurred within the framework of the Eurostat project "Economic globalisation and business/Innovative sources and methods for tourism statistics” (the Project), spanning from 1 December 2018 to 30 November 2019.
The reason for this project stems from the recognition that not all purchases are captured in surveys (recall bias, underreporting). The Central Statistical Bureau identified a gap in understanding consumption patterns, prompting an exploration into more comprehensive data sources. This analysis contributed to the compilation of the TSA, as the purchase structure in the border survey conducted by the Central Statistical Bureau was not fully consistent with TSA guidelines. However, the border survey was cancelled in 2021 because a new data source, payment card data (regulated by European Central Bank), was implemented by National Bank of Latvia. The structure of the border survey can be seen in Figure 1.
Source: Central Statistical Bureau of Latvia
The anticipated primary objectives of this initiative were centred around establishing an estimated structure of expenditure by products, utilising the Statistical Classification of Economic Activities (NACE Rev.2) for the TSA. Efforts were concentrated on understanding the nature of department store purchases, given that the tax-free data does not differentiate these purchases but presents them as a bundle. A meticulous analysis was undertaken to scrutinise transactions with the potential to be categorised as valuable items. It was important to unbundle these “product bundles” in department stores, because they accounted for more than 10% of all purchases in the tax-free declarations.
The Project included two deliverables: the estimation of the purchase structure for TSA Table 1, and a methodology on the treatment of valuables and durables in the border survey.
The Central Statistical Bureau made an agreement with Global Blue in 2019, and the data sets and analysis of the tax-free data for the department store purchases were delivered within a month. The data were delivered via email in Excel format and the analysed reference years were 2016 to 2018, coinciding with the compilation years for the TSA.
The project was implemented by the Central Statistical Bureau. The Central Statistical Bureau and Global Blue collaborated on the methodology and data-related aspects. During the project, other institutions were informed and consulted, including the National Bank of Latvia, Investment and Development Agency of Latvia, and specialists from The Ministry of Economics of the Republic of Latvia.
The main source of funding for this project was the European Commission, and the remaining amount was allocated from the Central Statistical Bureau budget. The price given in 2019 was competitive if compared to gathering a similar type of information via a survey.
The geographical focus of this initiative was exclusively tax-free purchases made by non-resident travellers from outside the EU, Norway, and Switzerland in Latvia. The data was derived from micro-level tax-free declarations of purchases, that were aggregated by Global Blue to a level that ensured data confidentiality before sharing with the Central Statistical Bureau.
Up until 2019, a noteworthy proportion of travellers in Latvia originated from non-EU countries. As a working assumption, it was posited that the spend behaviour of visitors from non-EU countries closely resembled that of visitors from EU countries. This served as a pragmatic approach to overcome the limitations posed by the tax-free data. The assumption was later substantiated by the examination of payment cards data (available from 2022) which showed a similar spend behaviour of the two groups.
The only method to identify tourists in the data provided by Global Blue was the individuals’ passport information which was determined when completing the tax-free purchase in the store. The data encompass traveller purchases made in Latvia that were declared at the border before departure, using the traveller’s passport for identification, without distinguishing commuter or other traveller types outside the tourism definition.
Global Blue provided detailed data on valuable and durable purchases, guiding the study's focus on creating the TSA structure and understanding valuables and durables acquired during visits. "Durables and valuable goods" encompass items such as cars, computers, artwork, or jewellery, fulfilling individuals' needs beyond the trip. Establishing a monetary threshold is challenging, but a suggested guideline is EUR 300. Global Blue's purchase structure, spanning various categories, revealed that nearly 90% of all purchases were made in one of the four categories department stores, clothes and shoes, jewellery and watches, and electronics/telephones.
In Latvia, two department stores aggregate all purchases under one NACE Rev.2. code, constituting over 10% of purchases in the Global Blue data. As tax-free declarations require information about specific purchased products, it was possible to investigate this data in more detail. Global Blue analysed the declarations from the two department stores, randomly selecting each 10th declaration. The results from this analysis showed a similar structure as a general product structure for tax-free purchases, with almost 50% constituting clothing and footwear, followed by household items (10-20%).
One of the anticipated outcomes of the initiative was to dissect department store purchases and scrutinise transactions that could be classified as valuables. However, the Central Statistical Bureau could not obtain the purchase microdata from Global Blue, which resulted in some limitations. The data on durables included absolute and relative values of potential durable goods, for goods of above EUR 150. From this data, it was possible to conclude that around 50% of the purchases in category “Consumer electronics and cell phones” were durable goods. Regarding valuables, information was provided by product categories (food, clothing, cosmetics, jewellery etc.) in value ranges of purchases exceeding EUR 300 (€ 300 to 350, € 350 to 400, …, € 40 000 to 50 000), together with the number of purchases, the average value of purchases in the range, and the total value of purchases in the specific value range.
The data and results from this initiative were shared in informative meetings and included in Eurostat’s final report for the project. The findings were also showcased in a travel workshop (10th travel workshop meeting in Athens in June 2019) and shared with the Eurostat Tourism Working Group in Luxembourg (October 2019). These avenues served as crucial platforms for presenting and discussing the outcomes and insights derived from the study. The inclusion of data in these reports and forums reflects a commitment to sharing the research outcomes with relevant stakeholders, fostering collaboration, and contributing to the broader discourse within the Eurostat community and the field of tourism statistics.
The tax-free purchase data highlighted some disparities with the information from the Border Survey, suggesting potential underreporting and rounding of expenses, or non-disclosure by respondents.
The data from Global Blue illuminated the spending patterns of visitors from non-EU countries who received a tax refund. In 2018, Global Blue reported purchases totalling EUR 17 million, down from EUR 19.6 million in 2017. The border survey responses from non-EU citizens indicated a larger expenditure in the corresponding category, however, this is likely due the border survey including a wider range of purchases than the tax-free data. For example, the VAT tax refund threshold is EUR 44 in Latvia, meaning that smaller purchases are not included. Additionally, to declare expenses the purchase must be specifically stamped and unwrapped.
Source: Central Statistical Bureau of Latvia, Report “Economic globalisation and business/Innovative sources and methods for tourism statistics”
An analysis spanning the years 2016 to 2018 revealed a stable purchase structure applicable to other years. However, it is important to note that the tourism landscape in Latvia underwent significant changes post-2020 due to the COVID-19 pandemic and resulting changes in Latvia’s travel policies, and the Russian war of aggression in Ukraine and resulting restrictions on citizens from Russia and Belarus, both impacting the flow and structure of tourism. Consequently, the structure now is likely to have changed compared to pre-2020.
The data offered precise details on businesses and stores of purchase, a feature lacking in border surveys, aiding in identifying top sellers and most popular product types. Global Blue shopping options are concentrated in specific locations, primarily in Riga (1096 places), followed by Daugavpils (64 places) and Liepaja (40 places) as of May 2023, reflecting the shopping patterns confirmed in the border survey, with Riga being the most visited city in Latvia.
The data not only captured the nature of purchases but also provided insights into the specific locations of these purchases, highlighting the amount of money spent, together with the geographical locations of individuals within the country. This information is particularly valuable for analysing the consumption patterns of durables and valuables, enabling a thorough examination of tourism trends and facilitating comparisons with previous years.
The primary success of the initiative lies in the estimation of the purchase structure for TSA Table 1, offering a valuable foundation for further analysis. To enhance the initiative, obtaining microdata would be essential, as it would allow for a more granular understanding of the purchase structure and enable a more detailed and nuanced analysis of the data. This improvement would contribute to a deeper comprehension of tourism trends and assist in making informed decisions for the tourism sector in the country. Additionally, the tax-free data enabled the evaluation of the quality of the border survey data. However, it is important to note that most expenditure was related to TSA section 11 as show in Table 1.
Source: Central Statistical Bureau of Latvia
The obtained and analysed information was used internally for the TSA, and was presented at meetings as useful and perspective data source for data analysts. The data especially valuable and relevant if there is no other relevant data source, such as extended purchase structure or payment card data.
For further information please contact:
Dita Zemite, Deputy Department Director, dita.zemite@csp.gov.lv;
Laura Klavina, Senior Expert, Central Statistical Bureau of Latvia, Environment Statistics Methodology Section, laura.klavina@csp.gov.lv.
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