VAT Hikes Could Harm Europe’s Tourism Sector, Warns HOTREC

Published on November 28, 2025

HOTREC reported the looming dangers of the increased economic costs of VAT in tourism and hospitality. HOTREC conducted Synestia Policy and Economics within the EU, the UK, Iceland, and Norway. Should VAT be increased, the report suggests loss of business, livelihood, and jobs, especially in small and medium sized hospitality enterprises in rural areas.

Tourism Industry Faces Severe Risks from VAT Increases

The research conducted by HOTREC suggests that even a small increase in VAT rates could have a devastating effect on the tourism industry. The report highlights that a mere 1 percent increase in VAT could lead to an 8 billion euros drop in sales and result in over 100,000 job losses across the sector. This is particularly concerning for the hospitality industry, which operates on tight profit margins and relies heavily on labour-intensive operations. The most vulnerable regions would be rural areas, where tourism plays a central role in supporting the local economy and employment.

In the event that VAT rates are aligned to standard tax rates across the board, the impact could be even more significant. The study predicts that nearly 1 million jobs could be lost, and GDP could decrease by 0.5 percent, with rural areas suffering the most. The loss of jobs would create a ripple effect, leading to a decline in consumer spending and further economic contraction, particularly in regions that depend heavily on tourism for employment.

Rising Dependence on Tourism Taxes

Another issue raised in the report is the growing dependence of some European regions on tourism taxes, which have started to surpass VAT revenues from accommodations in certain areas. This is particularly evident in cities like Amsterdam, where the combined VAT and tourism taxes could account for more than 33 percent of the cost of a hotel room. Such high taxes, particularly in cities that are major tourist destinations, could significantly reduce the affordability and attractiveness of the region for visitors.

A planned VAT increase to 12.5 percent in Amsterdam by 2026 could compound this issue, creating further financial burdens on the tourism sector. As tourism taxes become a larger source of revenue for local governments, there is concern that this could lead to an uneven playing field between traditional hospitality businesses and other sectors, such as short-term rentals, which may not face the same level of taxation or regulation. The increased tax burden could ultimately affect the overall competitiveness of the hospitality sector, particularly in major cities and tourist hotspots.

Challenges Posed by Fragmented Tax Regulations

One of the major challenges for the hospitality industry is the fragmented tax framework across Europe. The report points out that inconsistent tax regulations create an uneven playing field for businesses, particularly with regards to the treatment of short-term rentals. In many cities, short-term rentals often benefit from tax exemptions or lack stringent enforcement, which distorts competition and places additional pressure on traditional hospitality businesses that comply with all tax regulations.

This lack of uniformity across the European Union creates a competitive imbalance, especially in high-demand urban areas where tourism is a key economic driver. For example, while hotels and other traditional accommodations face high taxes, short-term rental platforms, such as Airbnb, may not always be subject to the same level of regulation or taxation. This undermines the sustainability of the tourism sector and limits the ability of traditional hospitality businesses to compete on an equal footing.

The Need for Coordinated Tax Policy

The HOTREC report stresses the importance of a coordinated approach to tax policy, one that considers the cumulative impact of multiple taxes and regulatory burdens on the tourism sector. The report calls for careful consideration of the implications of raising VAT, particularly for the hospitality industry, which is highly sensitive to tax increases. It also suggests that tourism taxes should be reinvested transparently and proportionately into the sector to ensure that these revenues are used to support the long-term sustainability of the tourism industry.

To mitigate the potential damage caused by VAT hikes, HOTREC recommends that policymakers adopt a more cautious and evidence-based approach to fiscal policy. This includes maintaining lower VAT rates for the hospitality sector, as these lower rates are seen as essential for ensuring job stability and the affordability of services. By doing so, governments can help protect jobs in the tourism sector and promote the continued growth and success of this vital industry.

Protecting the Future of European Tourism

As European countries think of changing the VAT and tourism tax rates, the findings from HOTREC’s research show the need for caution. An overnight hike to the VAT to the maximum rate is very damaging for the tourism industry as it will cause job losses, business closures, and economic recession in rural or peripheral areas of the EU where tourism is the main economic activity. This is the main reason why tax policymakers need to introduce tax reforms and policies which will ensure tourism’s sustainability and growth in the European economy. This is what HOTREC seeks and will continue to advocate for.