Tour companies are concerned over Germany's VAT plan: Travel Weekly

Tour operators are largely taking a wait-and-see approach in response to news that Germany plans to levy a new tax against foreign tour operators in January.

But some are clearly displeased with the country’s move to make more money off of tourism.

The value-added tax (VAT), which would apply to non-EU tour operators who sell vacations to Germany, could be high enough to impact tour pricing for consumers, the operators say.

Tauck, which runs a number of tours and river cruises in Germany, says it has a number of serious concerns with the new VAT.

“For starters, the timing of the proposed Jan. 1 start date doesn’t allow Tauck or other tour operators to factor the costs of the new tax into our 2023 prices, which were announced many months ago,” said Jeremy Palmer, Tauck’s COO. “Because we have a strict policy of honoring our published prices, we’ll be forced to fully absorb the added expense of the VAT for an entire year.”

There is also concern about how much extra paperwork the VAT would create, given that companies would be required to file tax returns with Germany, which they haven’t previously done.

“There will be a significant administrative burden on tour operators, and because the specific processes haven’t even been announced yet, we’re not able to do anything now to put systems in place or otherwise prepare,” Palmer said. “In fact, it’s far from clear that Germany is now or will be prepared for all the administrative work that the VAT will create on their own end. The whole proposed implementation seems poorly timed and ill-advised, and of course, we’re already paying substantial taxes on our operations in Germany.”

Globus also said that it could take on losses to preserve price integrity.

“In general, when prices are set, the Globus family of brands absorbs additional costs so that travelers are not impacted by variable pricing,” said Steve Born, Globus’ chief marketing officer. “We anticipate this will be the situation in January when this new tax comes into effect.”

Some suppliers say it is still too early to tell how they would respond given how much uncertainty remains about how Germany plans to collect and enforce the tax, which would apply to thousands of travel businesses in foreign markets.

Ulla Hefel Bohler, COO of the Travel Corporation, cited uncertainty as to “how the new tax regime will be applied,” and specifically whether it will affect 2023 bookings for German trips made prior to Dec. 31. Bohler said the tax could result in higher tour prices at the consumer level for the Travel Corporation’s 42 tour brands, since rates could range from 2% to 9%.

“The introduction of this new sales tax will clearly have an impact on prices, which may impact bookings on these itineraries as German products will have higher increases than other European destinations,” Bohler said. “Given that the travel industry is still in recovery, the timing is surprising.”

Tour operators and industry leaders worry that Germany’s move to charge an additional tourism tax will prompt other countries to do the same.

“We are concerned about this VAT approach spreading to other markets and driving up the cost of travel over time,” said Robert Drumm, CEO of Alexander + Roberts. “The resurgence in travel demand makes such a new tax structure appealing to authorities, of course. The entire USTOA community is attentive.”

Both the USTOA and the European Tour Operators Association (ETOA) have taken strong positions against the tax.
ETOA CEO Tom Jenkins said the German government has yet to formally notify its foreign-market partners of the possibly forthcoming tax and, as operators like Tauck have noted, says that 2023 tour prices have already been set, with some tours booked and paid for.

“The industry is left in limbo,” Jenkins said. “German vacations that will take place in 2023 have already been planned and costed. This is a substantial investment which may lead to a loss as a result of this measure.”

Tauck’s Palmer said the industry should form a united front in opposition to the VAT.

“We also urge our tour industry colleagues to rally behind the efforts of the USTOA and ETOA,” he said. “There’s strength in numbers, and these two organizations are very powerful voices on our behalf.”

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