The Spanish government's move to increase VAT on hotels from 8% to 10% will hit tourism to the country and give rival destination Greece an advantage, according to Monarch Travel Group managing director Hugh Morgan.
The Spanish prime minister Mariano Rajoy confirmed the increase yesterday as part of a raft of spending cuts and tax hikes.
The 2% increase applies from August. Hotels are expected to absorb the cost for this summer and pass it on for summer 2013.
Some in the trade felt the increase was a reprieve, following fears that the tax could escalate by as much as 10% to bring it in line with the country's main VAT rate of 18%.
However, Morgan said the move was "very disappointing".
He told Travel Weekly: "Any increase in VAT on hotels, especially when Greece and other countries are thinking of reducing it, is a folly.
"This charge will automatically be passed on to the client so prices will go up.
"If Greece cuts VAT on hotels, Spain won't be competitive. This gives Greece an advantage."
He added: "We have always been very supportive of Spain but this kind of thing does not help".
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