Tax Incentives For Hotels Opening All Year?

The Spanish Confederation of Hotels and Tourist Accommodation (CEHAT) held its last meeting of the year this week in Madrid. One of the main topics for discussion was the old - very old - chestnut of seasonality. Solutions that the meeting raised included those which are as old as the problems posed by seasonality, ones that are of a financial (tax) nature.

The headlining suggestion from the meeting was that the super-reduced rate of IVA (VAT) should be applied to those hotels which stay open all year, meaning that it would only be 4%. It is believed that this reduction would have a direct effect in increasing revenues.

Playing around with tax has been spoken about for so long and the debilitating effect of seasonality has existed for so long that it seems astonishing that there haven't been measures adopted which might give tax breaks and so incentivise hotel openings. In fact, certain local authorities have brought in tax breaks for those taxes which they have responsibility for. In Marbella, hotels will be credited with 50% of their business tax if they stay open. In Almeria, both business and property tax will be reduced.

Marbella and Almeria are in Andalusia, a region of Spain which attracts greater numbers of off-season tourists than most others. As an example, it receives seven times the number of golf tourists who visit the Balearics. Despite this greater number, Andalusia is and has been mightily concerned about the impact of seasonality. In October, the region's tourism minister met with business and unions in arriving at an agreement for incentives for hotels to stay open. The incentives have yet to be fully worked out, but the very fact that various parties have got together in order to come to an agreement in principle contrasts greatly with the situation in the Balearics. In Andalusia, where the problem of seasonality is less acute, they nevertheless are looking to do something about the problem. There's a lesson here for the Balearics.

Represented at the meeting this week was HOSBEC, the hotel association for Benidorm and the Costa Blanca. Benidorm, widely believed to be a destination that has something approximating to a genuine winter season, has witnessed a decline in this seasonal tourism over the past few years, but this November hotel occupancy in Benidorm was 79%, up by 8.5% over the same month in 2012. In the second half of November, overnight stays by Spanish guests rose by a staggering 42%.

Benidorm does benefit from national tourism in the off-season and most of what it was receiving in November was from the "seniors" market, but the figures for November indicate what can be achievable. HOSBEC, looking to develop on this success, has added to the call for incentives. It wants social security payments to be deferred for hotels which keep open.

Both the Costa Blanca and Andalusia have advantages which Mallorca and the Balearics do not. They are easier to get to for both national and international travellers. There are, for example, that many more international flights, partly a reflection of the existence of much larger populations of foreign nationals (British for instance). But both are looking to be proactive in bringing more off-season tourists and in introducing or pressing for incentives. The Mallorcan hoteliers have spoken about incentives as well, but a key difference is that, where there is talk in Mallorca, in other parts of Spain, they get on and actually do something.

And there is a way in which HOSBEC differs to Mallorca. It, and CEHAT appears to side with it on this one, wants to establish a uniform system of private tourist accommodation, drawing on the experiences in Catalonia and work done there by, yes, the Barcelona Hotel Association. Totally unlike the Balearics, the hoteliers have worked with the private owners to arrive at a system which has now been launched that categorises private accommodation (including and especially apartments) according to a key system. HOSBEC and CEHAT refer to the need to eradicate illegal accommodation, but both appear to accept the sense of there being a properly regulated and marketed private accommodation sector. Again, there should be a lesson here for the Balearics, but of course there almost certainly won't be.

The Catalonian categorisation, were it to be more widely adopted, would in fact fall in line with what the national government had foreseen in its national tourism plan, namely more standardisation of accommodation types and classification. It might, therefore, become a national standard, except that it wouldn't be national, not while the obstinacy of the regional government and hoteliers in the Balearics remains as it is.

Holiday Rentals: Now they go international

The Spanish Confederation of Hotels and Tourist Accommodation (CEHAT) has issued a report in which it says that holiday rentals that are not within the law generate a black economy sum of almost 3,000 million euros.

This is a staggering amount of money, so staggering that it is hard to know what it actually refers to. Is CEHAT saying this is an annual sum? As always with these amounts that are thrown into the media fire, they are designed to stagger without substance being offered to support them or to explain them. Let's just accept, though, that there is a lot of black money associated with holiday rentals; it is undeniable.

This 3,000 million is from the "oferta alegal". The use of "alegal" is not unimportant as it doesn't mean the same as "ilegal". It means "not within the law" and can also mean "unregulated". The distinction is important because across Spain many holiday rentals are "alegal" in that there is no legislation in several regions of the country that expressly deals with this type of accommodation. There is one region, however, that does have legislation, and we are of course familiar with it: the Balearics tourism law.

The need for regions to have their own laws is one consequence of the reform of the national tenancy act. Madrid, by this reform, effectively abrogated any responsibility for holiday rentals, placing this responsibility with regional governments. It was a reform that had the support of the hoteliers (some might say that it was a reform drawn up by the hoteliers) as, in certain parts of Spain, the hotel lobby is all powerful, e.g. in the Balearics, and heavily influences regional legislation.

It was a reform, however, that was curious in one particular way. The national plan for tourism, published in June last year, identified "an increase in residential tourism" as a strength of Spain's tourism. Though the plan's document avoided reference to holiday rentals, concentrating instead on second homes and on family use of such homes (permissible under the tenancy act), this type of tourism is only an element of the catch-all term "residential tourism". Another element, and a very significant element, is the "oferta alegal" or "ilegal" where illegal can be used.

What was doubly curious was that, having identified this type of tourism as a "national" strength, a reform that does not directly come under the heading of tourism, that to do with the tenancy act, which is property legislation, went in the opposite direction. By handing responsibilities to regional government, not only was a national strength ignored but the potential for diverse and so confusing legislation was also heightened. To give one example, and a very different one to the Balearics, in Catalonia, where there is regulation, the offer of holiday rental places has soared. CEHAT says that, in Barcelona alone, it greatly outstrips the number of places in hotels or previously regulated types of accommodation, so bringing about conditions under which it is impossible for hoteliers to compete.  

But what CEHAT doesn't say is that Catalonia introduced a tourist tax last year. The government there saw a need to harmonise this tax for different types of accommodation and also saw a revenue opportunity; it has regulated holiday rentals in order to bring in more money. And what CEHAT doesn't admit is that growing tourist demand cannot be met by hotel supply and will not be met by a new boom in hotel construction (there are due, for example, to be some new hotels built in Mallorca but only a few). 

There has been, again according to CEHAT, a very significant rise in the "oferta alegal" over the past three years: a rise of 300%. We will have to take its word for it. There is little doubt that there has been a steep increase and there are good reasons why - demand, economic circumstances (of owners who need to supplement incomes), the emergence of P2P websites such as Airbnb. Alarmed by this, CEHAT sees the threat not just nationally but also internationally. At the meeting of the European Trade Association of Hotels, Restaurants and Cafés in Europe that takes place shortly in Athens, it hopes that "international best practice" can be established to guide regulation of accommodation that is outside the law.

CEHAT, as with the hotel federation in Mallorca, cries foul against the "oferta alegal", warning of the dangers it poses to the tourism industry and claiming unfair competition. It will keep on issuing these warnings and making these claims, while all the time not admitting that its aim is to eliminate competition; and competition, moreover, that is needed in order to satisfy demand.