Chinese Hotels Becoming More Expensive May 1, 2016 (VAT Introduced)

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A LoyaltyLobby reader alerted me the other day to the changes in China (mainland only) that will affect hotel pricing (basically making them more expensive).

China Tax Change

Until now, there has been a 5% Business Tax that will become 6% VAT on May 1, 2016. Many hotels have only been charging 10% or 15% service charge, but will start adding this 6% VAT from May 1st.

This VAT is calculated from the combined room rate + the service charge. When the service charge is 15%, the combined service charge + VAT add 21.9% to the room rate.

Here’s how this is shown on various hotel websites:

IHG:

China Tax Change IHG

15% Service charge + 6% VAT for a stay in June.

China Tax Change IHG Pre May 1

What is weird that the service charge is only 10% in April + 5% business tax.

Hilton:

China Tax Change Hilton

Only lists 15% service charge for a stay in June

Hyatt:

China Tax Change Hyatt

Just shows the service charge and tax amounts, but not the percentages.

China Tax Change Hyatt May

For a stay in April, only the service charge is listed.

Starwood

China Tax Change SPG

Only lists the 15% service charge for a stay in June.

China Tax Change SPG Notice

There is, however, a note that the sales tax will be added.

Conclusion

This 15% service charge that most of the hotels have been charging seems to be consisting 10% service charge + 5% business tax. Now, the hotels are merely adding the 6% sales tax in top of the 15% service charge making the “tax” 21.9%.

Hotels can deduct VAT expenses from their VAT payables. This apply for Chinese business travelers too.

Seems that hotels are double dipping here on guests expense and there really shouldn’t be 15% service charge in the first place!

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