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United Kingdom: UK PM Rules Out Cut-Rate VAT For Tourism

Friday, 23 August 2013   (0 Comments)
Posted by: Author: Jason Gorringe
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Author: Jason Gorringe

The UK Prime Minister David Cameron has rebuffed calls for a reduced rate of value-added tax for the hotel and tourism industry, in a direct response to the launch of a recent campaign for tax relief.

Speaking during a public question and answer session hosted by Capital FM, Cameron recalled the UK Government's decision to hike the standard VAT rate, in place on the hotel and tourism industry, on January 4, 2011, to 20 percent from 17.5 percent. Discussing the prospect of restoring a lower rate, Cameron said:

"We introduced the new VAT rate because we had to deal with this budget deficit. When I came to be Prime Minister we had the biggest budget deficit of virtually any country anywhere in the world, it was a similar size to Greece so we had to deal with it."

"You can't deal with it only by cutting spending, you have to look at taxes as well, so VAT was one of the taxes that went up."

"There will always be good cases for cutting VAT on individual items, the leisure industry and the hotel industry makes a very good argument but as do lots of other industries. People say to me why not cut VAT on repairing houses ... there are lots of arguments for cutting VAT so people have to come up with a very good one before it gets accepted."

He pointed out that due to the relative cost of sterling, Britain as a destination has become cheaper. "Britain's got a massive opportunity here. I think we need to do more to promote Britain as a destination... and we've got to get them to come and visit outside of London and travel around the country and visit other cities."

"There are lots of methods that don't involve cutting VAT, which would be expensive," he concluded.

His comments come amid lobbying by the hospitality and tourism industry under the "Cut Tourism VAT Campaign" umbrella which has sought to point out that the Irish tourism industry has seen a dramatic recovery following the introduction of a reduced rate for tourism. Irish VAT on the sector was cut from 13.5 percent to 9 percent in July 2011.

Graham Wason, Chairman of the Cut Tourism VAT campaign earlier argued: "Whilst the UK tourism sector struggles under a twenty percent rate, Ireland has taken advantage of a lower rate to increase its visitor numbers and [create] new jobs. The UK's high tourism VAT encourages [British holidaymakers] to take a break abroad in Ireland, France or elsewhere in Europe."

The UK is among just a handful of European states that levies its headline VAT rate on the hospitality industry despite a growing number of European states that have introduced tax breaks in recent years. Switzerland has recently extended its reduced VAT rates on tourism services for four years and Portugal is tipped to implement similar concessions.

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