Hotels told not to hike prices amid upcoming VAT reform
Regulators warned hotels in China against raising prices when value-added tax reform comes into effect next week
China National Tourism Administration (CNTA) and the China Tourist Hotel Association (CTHA) warned the hospitality industry against price hikes when the value-added tax reform expands to the hotel industry next month.
Under existing taxation rules, a business tax is levied at a rate of 5 percent of the gross revenue of a business, be it a small or large one.
After the tax reform, hotels with annual sales less than 5 million yuan ($772,000) will be subject to an "easy taxation" method: 3 percent VAT on their sales, lower than the original 5 percent business tax.
For those with annual sales higher than 5 million yuan, a 6 percent VAT will be collected. The rate is nominally higher than the previous 5 percent, but considering hotel operators are allowed to use their costs in water, electricity, natural gas and consumables - as well as in fixed-assets, housing renovation, maintenance and other outsourcing services - as deductions, the actual tax burden is reduced rather than increased, the authority said.
As the new round of VAT reform takes effect on May 1, the tourism market will also enter a peak season.
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