|Photo by Freeimages.com/Steve Wenzel|
In a move that has prompted criticism from the Global Business Travel Association (GBTA), China’s Premier Li Keqiang has expanded the scope of the country’s Value Added Tax (VAT) to several key sectors, including hospitality, to take effect from May 1, 2016.
Prior to this announcement, most hotels in China charged guests a 15 percent “service charge” consisting of a 10 percent service charge and a 5 percent business tax. This new policy transforms the hotel service charge from a business tax of 5 percent to a VAT of 6 percent. As a result, corporate travelers and buyers should expect the service charge should now be 16 percent, the GBTA said. Some hotel policies, however, have been to simply add the 6 percent VAT onto the previous service charge, creating a 21 percent charge.
The GBTA and its GBTA China region have called for a dialogue and clarification between corporate travel buyers and hotels to discuss these changes and to ensure travelers are being charged according to China’s policy.
“China is taking bold steps to transform their tax policy to foster a stronger economy,” said GBTA Executive Director Michael W. McCormick. “The industry must ensure it is meeting the spirit of the reform and encouraging increased travel and hotel occupancy.”