The Swiss hotel industry has become accustomed to an unhealthy practice of subsidies. This should be abolished, and not just because of tight state coffers.
In Switzerland, anyone who finds themselves under economic pressure seems best advised to call on the state for help.
The most recent example is not even the steel industry, but the Swiss hotel industry.
Already extended six times
The special 3.8 percent VAT rate for accommodation services, which is currently set to expire at the end of 2027, is to be extended for another eight years until the end of 2035, according to a new consultation paper from parliament.
The special rate for accommodation services was introduced way back on October 1, 1996, as a ‘temporary measure’ to support the accommodation industry in its difficult situation at that time and to ensure competitiveness.
Since then, however, the special rate has been extended six times, most recently from 2017 to 2027.
This extension was justified in particular by the strong appreciation of the Swiss franc.
Permanent provisional arrangement
For decades, Swiss hotels have benefited from a special rate that is significantly lower than the standard rate of 8.1 percent.
Originally intended as a temporary relief measure to support tourism in Switzerland by many foreign guests, the discount has been extended again and again.
The arguments are always the same: accommodation services are consumed to a considerable extent by people who are not resident or domiciled in Switzerland.
Therefore, the industry does have an export component and, like exports, must therefore be exempt from VAT.
Exports are subject to duties abroad
However, this tax is a consumption tax, which means that the hoteliers’ argument is flawed.
Unlike exports, however, accommodation services are consumed domestically.
Furthermore, local accommodation services are not taxed abroad because the service is wholly consumed domestically.
This is a major difference. Swiss exports are subject to a consumption tax – just not in Switzerland. The hotels seem to be conveniently overlooking this fact.
Denmark at 25 percent
Comparisons with other countries are also misleading. Switzerland’s standard rate of 8.1 percent would still be lower than the reduced tax rates in most European countries.
There can be no question of distortion of competition either. Switzerland is well below the minimum rate of 5 percent required by EU law.
And in Denmark and the United Kingdom, the VAT rates are even in line with the standard rate of 25 percent and 20 percent, respectively. However, there is no talk of a tourism crisis there.
“The special rate therefore does not lead to accommodation services being treated in the same way as exports, but rather to a tax privilege for one industry,” as is clearly stated in the explanatory report on the lower VAT rate.
Implementation far too complex
The reduced VAT rate costs the public sector millions in tax revenue every year.
The federal government estimates the shortfall at around 300 million Swiss francs per year. This goes missing from the Federal Tax Administration (FTA) coffers at a time when public finances are tight.
Another argument in favor of abolishing the special rate is that it would simplify the processing of VAT, as only a maximum of two tax rates would then apply to accommodation providers.
In any case, there are already ongoing difficulties in assigning certain tax rates to hotel packages.
Federal Council slams on the brakes
Many Swiss hotels have become accustomed to the comfort of this presupposed government relief – and have long since factored that in to their business models.
The industry had even hoped that the motion put forward by St. Gallen SVP Council of States member Esther Friedli would result in an indefinite regulation, allowing for long-term planning.
By limiting the relief to eight years, the Federal Council is attempting to put at least a small stop to this and once again signal to the hotel industry that it must become self-sustaining in the medium term without presuming any special treatment.
Shift in customer groups
The main argument that accommodation services are mainly provided to foreigners is no longer valid.
According to the Federal Council, around 66 percent of guests came from abroad back in 1996.
However, according to the latest figures, just half of hotel guests come from abroad. With para-hotels, only 45 percent of hotel guests in Switzerland are foreigners.
The question therefore arises as to whether a measure that primarily targets the price sensitivity of foreign guests is still effective today.
According to the federal government, especially since domestic tourism has become an important pillar within the industry.
From record to record
The hotel industry is not even struggling with a slump in demand.
Last year, Switzerland recorded around 43 million overnight stays, which marked a new record high.
This represents an increase of around 38 percent compared to1996. That’s when the special rate was introduced, and even an increase of 8.1 percent compared to 2019, the year before the coronavirus pandemic.
Feeding from the state
From an economic perspective, there is a risk of a subsidy trap. Those who rely on state hand-outs in the long term have less incentive to innovate or to increase efficiency.
In the worst case, business models that could not survive in a free market are just kept alive artificially.
Given all the counterarguments, the special treatment for Swiss hotels should not be limited by time, but abolished once and for all.
14.08.2025/kut./ena.
