How to Avoid Add-On Taxes Abroad

Avoid Plus-Plus Prices

Fancier hotels and restaurants in Asia and Latin America, these days, often quote prices “plus plus” or sometimes “plus plus plus.”

Read the fine print and you’ll see the hotel adds as much as 23% for tax and 15% for service. The third plus could be for any other local tax.

Problem is, these plus-plus charges amount to a minor pretense. Hotels and restaurants add them to bills to avoid displaying higher room rates and menu prices. I’d compare them to airline fees. Carriers invent new fees all the time to be able to display lower ticket prices.

Let’s start with the hotel tax, sometimes referred to as “government tax.” In my experience the tax add-on charge most often reflects a value-added tax (VAT). A value-added tax is levied on the producer, not the consumer. The producer deducts value added taxes paid by suppliers. So, if a hotel pays US$100 in VAT, for example, it deducts, say, US$30 of VAT paid to food purveyors, linen services, and other providers. To charge you, the customer, the entire US$100 misleads you, the consumer, into thinking the hotel will pay that US$100 to the government, rather than US$70.

Even charging the US$70 makes little sense to me. Again, the VAT technically falls on the hotel, not its customers. Hotels should properly view the tax as one of their operating costs rather than a customer add-on.

The French agree. France was the first country to adopt VAT. France prohibits breaking out the VAT and charging the customer separately. Why make a customer pay for someone else’s tax? Most European countries follow the same line of thinking.

But in Asia and Latin America, the big players–the Hyatts and Sheratons, the Peninsulas and Orientals, the Four Seasons and others–often add the entire VAT to customer bills at check-out. Complacent governments either permit the practice or refuse to enforce laws that ban it. After all, hotels make big investments in these countries, and governments promote big investments.

Second, and more important, hotels worldwide know they can get away with it. Most customers live in, or have visited, the United States. Most U.S. states charge retail sales taxes. So, hotels and their bars and restaurants figure customers have become accustomed to a sales-tax add-on. Their customers will rarely complain, figuring they’re paying a sales tax even when there is no sales tax. Presto, the VAT becomes a sales tax. The two taxes are closely related, so when customers see a “government tax” add-on, they just shrug.

You often see service charges added, too. Again, the service charge comes from profit-oriented minds rather than local law or customs. Most countries in Asia lack the notion of tipping or paying extra for service. But since travelers in the United States have become used to tipping, and since so many travelers have been to the United States, big hotels figure they can get away with the service add-on.

In the case of service charges, unions around the world support the idea. After all, sometimes, at least some of the service charge gets kicked back to employees. Unions figure the kickback might amount to extra salary, although presumably hotels use the kickback to justify paying lower salaries in the first place.

So, how do you fight misleading add-ons for taxes and service? You don’t. If you complain, management will likely have a hard time even understanding you, they’ve become so used to the practice.

Instead, you can avoid dealing with plus-plus providers. In general only global companies add the charges. Very few locals have adopted the practice. Stick with the noodle shop around the corner rather than the plus-plus noodle shop in the Marriott.

In our case, when we wander into a hotel, bar, or restaurant and see plus-plus pricing, warning bells go off: “I’m in a place that caters to tourists, not locals. Management chooses to follow a misleading practice of add-on pricing.”

We may decide to stay in the place. A minor pretense is, after all, minor. But we prefer local places, and being treated like locals, and avoiding the pretense altogether.

Paul Terhorst

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