VAT reform to reduce 20% of hotel tax burden

Beijing's top hotels estimated that the value-added reform will cut their tax burden by around 20 percent, a rebuff to international hotels' claim that they will have to raise their prices to offset the impact of the reform.

Zheng Huaiyuan, deputy director of Beijing Municipal Office of the State Administration of Taxation (SAT), told a news conference on Wednesday that the city's five-star hotels had assessed the overall impact of the VAT reform, and concluded that their tax burden will be reduced by about 20 percent as a result.

He was responding to inquiries that Hyatt, Intercontinental, Marriott, and Hilton have increased their room prices, citing that VAT from May 1 will add to their tax burden. The room service fees was raised from previous 15 percent to 21.9 percent.

In an earlier statement, Ministry of Finance and SAT said that after the VAT reform, the overall tax burden of taxpayers will decrease, and for those hotels with below 5 million annual sales, their burden will be cut by about 40 percent.

This is because the government has designed transitional taxation models for those small businesses who might not be able to cope with the change in a short time: they can opt for a "easy taxation" method: 3 percent VAT on their sales----that's lower than their original 5 percent business tax.

For those hotels with an annual sale above 5 million, a 6 percent VAT rate is nominally higher than the previous 5 percent. But given the change in calculating taxable base, actual tax rate is 5.66 percent. Considering hotel operators could use their costs, such as procurement and real estate purchase or leasing, as deduction, actual tax burden has been reduced, instead of raised, Zheng said.

SAT's Beijing bureau estimated that after the reform expanded to real estate, construction, finance and consumer services sectors, 42 billion yuan tax will be saved for enterprises each year. Beijing municipality will bear 15.4 billion yuan losses in tax.