Task Force urges EU to lower tax rates on accommodations
 

(New York) A panel of tourism experts today recommended that European Union (EU) officials reduce and harmonize Value Added Tax (VAT) rates on accommodations in order to stimulate sector growth and job creation, increase competitiveness, and create a level playing field for EU hoteliers.

The Taxation Policy Task Force, established by the World Travel & Tourism Council (WTTC) and comprised of academics, private sector leaders, and government officials, unanimously endorsed lowering VAT rates to bring EU taxes more in line with competing destinations. Tax rates on hotels and other accommodations in the EU currently range from 3% in Luxembourg to 25% in Denmark.

“The current VAT arrangement makes it exceedingly difficult for EU hoteliers to remain competitive with non-EU destinations,” says Dr. Richard E. Kelley, Task Force Chairman and Chairman of Outrigger Enterprises, a hotel and resorts management company based in Hawaii. “Establishing a single, reduced rate on hotels would provide a level playing field for EU tourism and give a boost to an industry still recovering from 9-11.”

The issue is a timely one as the EU is moving closer to developing a “definitive” tax system to replace its current “transitional” system. Under the definitive system, goods and services will fall under one of two rate classes, standard or reduced. It has not yet been determined whether hotels will fall under the standard or reduced rate. The Task Force examined the pros and cons of each rate class in order to formulate their recommendations.

Task Force Members also measured the current VAT system against the WTTC’s Principals of Intelligent Taxation, which state that taxes should be equitable, efficient, simple, generate revenue in a fair manner, and act an effective stimulus for economic growth. According to Dr. Donald F. Holecek, Director of the WTTC’s Tax Policy Center at Michigan State University, the current system fails, in full or part, to meet any of the criteria for intelligent taxation.

“The wide disparity in rates between EU Member States indicates that the current system is far from equitable,” Holecek says. “The EU has long maintained that the goal of the VAT system is to ensure that each Member State levies similar rates for the same transactions, and the current system obviously falls short of achieving this goal. Simplifying and standardizing VAT rates should be a priority for EU policymakers.”

Members of the Task Force acknowledged that governments are often hesitant to lower travel-related tax rates for fear of losing revenue. However, in countries that have experimented with lower VAT rates (Ireland, most notably), governments have actually been able to increase their tax revenue because of increased demand.

In addition to harmonizing VAT rates, the Task Force also recommended the EU explore a system of offering tax refunds to non-EU leisure travelers, similar to the refunds many Member States currently offer to non-EU business travelers.
 

For further information contact:

World Travel & Tourism Council
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