Dutch plan to raise hotel sales tax “not well thought out,” says ABN Amro

The Dutch government’s plan to increase the VAT rate for overnight stays in hotels and lodging providers from 9 to 21 percent will not generate the additional tax revenues the government thinks it will. The additional tax from the measure itself will be much lower than the government calculated, and the measure could have devastating ripple effects for entrepreneurs inside and outside the hotel industry, ABN Amro reported. “Unfortunately, this measure does not seem to have been well thought out.”

The government expects that the 12 percent increase in VAT will lead to 1.212 billion euros in extra tax revenue—910 million euros extra from hotels and guesthouses and 302 million euros extra from other accommodation providers. That figure is based on Statistics Netherlands’ (CBS) figures showing that hotels generated an operating income of 6.8 billion euros in 2022.

However, according to ABN Amro, the government wrongly assumed that the VAT increase would affect the entire 6.8 billion euros for hotels. In reality, almost half of hotel guests (40 percent) are business travelers whose companies can reclaim the VAT. Another 36 percent of hotel turnover comes from the sale of food and drinks and 6 percent from additional services such as the rent of conference rooms, bicycles, and parking spaces.

“These are turnover categories that are not or hardly affected by the VAT increase,” the bank said. “The VAT increase only affects 34.8 percent of total hotel turnover.” So, the VAT increase will generate only 285 million euros, not 910 million euros, in additional tax revenue from hotels.

The government can also expect more setbacks from the measure. According to CBS, Dutch hotels made a profit of 571 million euros and paid 25.8 percent (147 million euros) in profit tax in 2022. The higher VAT rate will mean more expensive accommodation, resulting in fewer overnight stays.

“With the declining turnover and additional costs due to the VAT increase, hotels are in danger of becoming loss-making, and the income from profit tax will fall to virtually zero,” the bank said. “For the government, this means a blow of 147 million euros, while hotels have hardly any room left to invest in sustainability or improving employment conditions.”

The consequences are even more dire for other accommodation providers, especially in the border provinces where they face competition from cheaper accommodations in countries like Germany, France, and Italy, where VAT rates are much lower. “It is obvious that other accommodation providers will also become less profitable due to the VAT increase,” ABN Amro. That could mean another 111 million euros loss in corporate tax income for the government.

The VAT increase will also mean less tourist tax for local governments, especially in the border provinces where many Dutch people spend their holidays. Suppliers, restaurants, cultural institutions, craft shops, and public transport companies will also immediately feel the impact of fewer holidays.

“Foreign tourists staying in the Netherlands also spend only a quarter of their holiday budget on overnight stays. The majority of their expenditure ends up with local restaurants and entrepreneurs who sell excursions and entrance tickets or rent out bicycles and boats, for example,” ABN Amro said. Fewer overnight stays could amount to hundreds of millions of euros in lost turnover for these companies. “This automatically leads to a decrease in income from VAT and profit tax for the government,”

ABN Amro thinks the government should reconsider this measure. The hotel and accommodation sector makes an enormous contribution to the Dutch economy, the bank said. “It will, however, be hit hard by the VAT increase.”