As the date nears for Germany to impose a new sales tax on travel services, tour operators say it's increasingly clear that Germany travel will become more expensive and harder to sell.
The value-added tax (VAT), effective Jan. 1, will apply to non-EU tour operators selling vacations to Germany and comes with a requirement that those companies file tax returns with Germany, which they haven't previously had to do.
Tauck has said that any costs the company incurs from the VAT, with rates expected to range from 2% to 9%, will be passed on to clients with its 2024 pricing. The higher prices will be applied to all of the company's Germany offerings, including land tours, river cruises and the family-oriented Tauck Bridges program.
The VAT "will put Germany at a disadvantage to other destinations," said Jennifer Tombaugh, president of Tauck, who added that making travel to Germany more expensive at a time of global economic uncertainty is counterproductive, especially as destinations work to recover from the effects of the pandemic and the war in Ukraine.
"Travelers have a choice, and in this inflationary environment, value is increasingly important," Tombaugh said. "Eastern Germany and the Danube are already struggling to overcome concerns from the Russian invasion of Ukraine, and so Germany's timing to propose this tax is unfortunate."
Tauck's pricing for 2023 will remain unchanged, Tombaugh said. And the company is so far seeing strong demand for Germany and Europe overall and has not felt any impact on travel to Germany for next year.
But the same cannot be said for the Student & Youth Travel Association, which says the imminent VAT is already having a negative effect on the youth travel market as well as on business relations.
"Because of the proposed tax changes, many within the youth travel sector are avoiding it," said association president Adele Youngs, adding that businesses have been deterred by the expected administrative load in addition to the cost increase.
Demand for other destinations, such as the U.S. and Canada, Youngs said, "are strong and will likely benefit" from any potential tourism exodus.
But there is some potential good news that would help alleviate the impact on non-EU tour operators from bearing the full weight of the tax burden.
Will U.S. tour operators get a break?
During a recent webinar discussing the tax, Tom Jenkins, CEO of the European Tour Operators Association, said the German Finance Ministry is aware of the disadvantages posed to non-EU tour operators and that it is rumored the ministry will make the VAT regulations applicable only to travel services sold by non-EU operators to EU citizens, as opposed to all customers regardless of location.
Doing so, Jenkins said, would bring about a "huge sigh of relief."
Tauck's Tombaugh agreed that imposing the tax on EU travelers would be "more palatable to U.S. operators" but that many of the same basic questions remain about how the tax will be collected, enforced and communicated to the industry.
Meanwhile, the European Tour Operators Association said the European Commission, the EU arm responsible for drafting proposals for new legislation, is expected to submit its consultation of the VAT rules on Dec. 7.