Bed tax blues from around the world

04 May 2006
Bed tax blues from around the world

Plans to introduce a bed tax in the UK have led to an outcry in the hospitality industry, but operators here are not alone in facing the threat of such levies.

The problem is "a big issue throughout the world", according to Elizabeth Carroll-Simon, director of industry affairs at the International Hotel and Restaurant Association. Her organisation produces an annual survey that offers a global overview of the tax burden for the hospitality industry. "National governments tend to impose taxes on industry to cover budget deficits or make up for reduced tax revenue from other sources," says the latest report.

So how have attempts to introduce bed tax in other countries fared?

Legal challenge
In 2002 a tourist tax of this kind was introduced in the Balearic Islands of Spain. After a failed legal challenge by hoteliers, the then socialist-green coalition local government imposed an "eco-tax" of €1 per bed, per night on all visitors to Majorca, Minorca and Ibiza.

The idea was to use the extra revenue to fund environmental projects needed to protect the islands from tourism development. But the tax added £40 to the cost of a two-week family holiday and, as the local industry survives on low margins, it represented a significant increase in the cost of a package holiday. The tax was opposed by both tour operators and local hotel groups, which realised the impact it would have on visitor numbers.

Another problem was that hotels were expected to collect the tax directly from guests. "It was an extra big job - we spent one hour of each day working for the Government," said Baltasar Garcia, who now works for leading Spanish hotel chain Hotetur but was working as a receptionist in Alcudia, Majorca, at the time.

Garcia says some hoteliers who were against the tax compensated guests by giving them bar vouchers to the value of the taxes they had paid. Others, according to Harry Helps, a spokesman for tour operator Thomson, didn't bother to collect the tax at all. "We sent letters to all our clients heading to the Balearics warning them they would have to pay the tax, but it was touch and go whether they actually did," he says.

Helps says the new tax, combined with the introduction of the euro, caused holiday prices to increase in the region. This resulted in reduced visitor numbers as holiday-makers sought better-value alternatives like Turkey and Croatia. Mindful, perhaps, of the drop in visitor figures, a new local right-wing government elected in October 2003 immediately scrapped the tax.

Another bed tax scrapper was former New York mayor Rudy Giuliani. Shortly after his election in 1994, he did away with a bed tax of 5%, which was introduced by his predecessor David Dinkins. Giuliani also reduced the New York City hotel tax from 6% to 5%, believing the city's hospitality sector had become uncompetitive and overburdened by tariffs.

Lower taxes In 1993 New York staged half as many conventions as it had five years previously, and in that same year the Professional Convention Management Association actually boycotted the city.

"I wanted to send a powerful message that I believed that lower taxes would stimulate more than enough business to offset any immediate loss in revenue," wrote Giuliani in his 2002 autobiography. "That's exactly what happened. With more visitors, net revenue from the hotel tax was actually higher at 5% than it had been at 6%."

Around the same time, plans for a bed tax in Australia were being fiercely opposed by the Australian Hotels Association (AHA). A report drafted as a submission against the proposal argued the tax would raise hotel administration costs by 4%. It also said that tourists' price sensitivities would mean hotels would have to bear a part of the tax themselves, which would "serve to reduce the competitiveness of the Australian tourism industry".

Investment required With investment required in the sector in the run-up to the Sydney Olympics of 2000, the issue became big news. As a result of lobbying by the AHA and research carried out by the House of Representatives Standing Committee on Banking, Finance and Public Administration, the proposal was shelved.

In a statement with obvious significance for the UK today, John McKernan, chief executive of Australia's Hotel, Motel & Accommodation Association, said at the time: "It will be a deterrent to international visitors and will have a dampening effect on the 2000 Olympics."

One tax on hotels that has stood the test of time, however, is the German "Kurtaxe", which was introduced in 1893. Meaning, literally, "cure tax", it applies to hotels in spa resorts only. Munich-based tourism consultant Klaus Dingeldey explains the sites are "specialist locations and clients pay this extra tax, which goes towards investment in parks and the surrounding area.

"Of course, every entrepreneur dislikes taxes, but this one benefits the tourism industry and looks after its interests," he adds.

Tellingly, perhaps, the UK proposals contain no such pledge to plough cash back into the hospitality sector. Perhaps Carroll-Simon's view that governments use bed taxes to plug financial holes elsewhere is closer to the truth. No surprise, then, that the hotel industry is currently up in arms.

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