A new study released by HOTREC, conducted by Syntesia Policy & Economics, examines the potential adverse effects of increased taxation on the hospitality sector across the EU, Iceland, Norway, and the UK. The report warns that significant VAT hikes could trigger a substantial economic downturn, including massive job losses and business closures, particularly affecting SMEs and rural communities.
The study by HOTREC, a European hospitality sector representative, highlights the delicate balance required in tax policy to avoid harming the hospitality industry. With governments contemplating increases in VAT rates and expanding tourism taxes, the timing of this report is crucial. It utilizes economic modeling and case studies from Ireland, Amsterdam, and Denmark to predict the outcomes of such fiscal adjustments.
Economic Impact of VAT Increases
The research indicates that even minor increases in VAT could have disproportionately large negative impacts on the hospitality sector, which operates on slim profit margins and is heavily dependent on labor. A hypothetical 1-point increase in VAT is projected to reduce sales by approximately €8 billion and result in over 100,000 job losses. An alignment to standard VAT rates could be even more catastrophic, potentially leading to nearly 1 million job losses and a 0.5% decrease in GDP, with rural areas suffering the most.
Growing Dependence on Tourism Taxes
Tourism taxes are becoming a significant source of revenue in some regions, sometimes surpassing VAT revenues from accommodations. For instance, in Amsterdam, the combined VAT and tourism taxes could soon account for over 33% of a hotel bill. This increase is partly due to a planned VAT increase to 12.5% by 2026.
Challenges in Tax Regulation
The hospitality sector is also facing challenges due to a fragmented tax framework that creates an uneven playing field. Short-term rentals often benefit from tax exemptions or lack stringent enforcement, which distorts competition, especially in high-demand urban areas.
Recommendations and Conclusions
HOTREC urges policymakers to adopt a coordinated approach to tax policy, accounting for the cumulative impact of various taxes and regulatory burdens. The organization recommends avoiding abrupt VAT increases, better coordination of national and local taxes, ensuring fair taxation of short-term rentals, and transparent, proportionate reinvestment of tourism-tax revenues. Alexandros Vassilikos, President of HOTREC, emphasizes that reduced VAT rates should be viewed as a stabilization tool essential for protecting jobs and ensuring the sustainability of affordable hospitality services.
This comprehensive study serves as a critical resource for policymakers, providing clear evidence of the potential dangers of uncoordinated tax increases in the hospitality sector. It advocates for thoughtful and evidence-based fiscal strategies to prevent detrimental effects on a sector vital to Europe’s economy.
The Taxation Study is now available here:
