Economic volatility coupled with government cutbacks is forcing local authorities to introduce new bed taxes that could hurt the hotel industry.
LONDON—Hotel occupancy taxes, or “bed taxes,” might be commonplace in the United States, but they have been near nonexistent in Europe—until now.
The economic strains in the region coupled with central government cutbacks has forced local authorities to find new revenue streams, and many hoteliers believe tourists are being targeted to shield local residents.
“They are able to do this because the immediate victim does not vote; no politician cares about tourists. So they are presented with short-term gains to set against medium-term consequences. It is a temptation where local politicians are ill-equipped to make the right choice,” said Tom Jenkins, executive director of the European Tour Operators Association.
In Britain, Westminster Council in London and Edinburgh Council provoked a storm of protest from the hotel industry at the end of 2011 by proposing a bed tax. Westminster Council thought visitors should pay more towards the center’s upkeep, while Edinburgh Council wanted tourists to help fund its many festivals.
Both plans were denounced by hoteliers as a discriminatory, as they focused exclusively on the hotel industry and did not affect the area's restaurants, cafés and bars.
The county of Cornwall also is considering a £1 (US$1.60) surcharge on hotel bills. These charges are on top of the 20% value added tax, which already is charged in the U.K.
VAT is a tax that's charged on most goods and services in Europe, while a bed tax is an additional tax charged on top of VAT when someone books a hotel room.
Plans to introduce new bed taxes are “a rotten idea,” said Miles Quest of the British Hospitality Association. Not only would bed taxes put Britain at a major competitive disadvantage, but the taxes themselves are illegal because local U.K. councils are not able to introduce a bed tax without central government approval, he said.
A representative for London & Partners, the official promotional organization for the capital said: “We would discourage anything that makes London more expensive for visitors and will wait to see how this proposal progresses.”
Grant Hearn, the executive chairman at British budget chain Travelodge said, “It’s time to wake up to commercial reality and the clear-and-present danger that a bed tax represents for the corporate events market, the wider tourism economy and the U.K.’s reputation as an affordable business and holiday destination.”
Elsewhere in Europe, more cash-strapped local authorities are deciding to impose extra taxes on tourists on top of the standard VAT tax. Berlin, for example, will add a 5% tax on all hotel bills to help boost the coffers of the city government in January 2013.
Jürgen Benad, a spokesman for German hotel association Dehoga, said that the “hotel industry already contributes significantly” to local coffers, and that this tax unfairly discriminates against hoteliers and will damage tourism.
However, German hotel guests have not deserted Cologne, which started adding a 5% tax last year. Visitors to the city subsequently increased by 17%, according to a Reuters report.
Carine Bonnejean, director consultancy at Christie + Co, believes the 5% charge in Berlin and Cologne is high when compared to France, one of the few European countries to charge a national hotel tax.
“Five percent is quite significant compared to the French ‘tax de sojourn’ which varies from €0.20 (26 cents) to €1.50 (US$1.95) per person per night.”
A key issue is transparency. If the total price of the stay including these new taxes is clear when purchased, customers can factor this in as part of their purchasing decision, said Andreas Scriven, Christie + Co's head of consultancy.
“And with the ever-increasing transparency in pricing of hotel stock, it will be a key factor in the decision-making process,” he said.
In contrast, if guests only become aware of the tax upon check-out, many customers will feel misled.
“This approach holds obvious reputational risks for hoteliers, which when coupled with the loss of potential repeat business may have a material impact on performance in the midterm,” Scriven added.
In Berlin, local hoteliers have at least been given plenty of notice. However, hoteliers in Rome, Florence and other cities in Italy had to introduce a sliding scale tax with just a month’s notice.
ETOA’s Jenkins said these abrupt decisions are extremely disruptive.
“It takes a long time to plan and sell a holiday; inbound operators have an 18-month lead in time for pricing,” he said. “So when local tourism taxes are introduced with four weeks' notice, they are imposed on clients who have already fixed and paid for their services.”