The Guam Visitors Bureau outlined some of the potential adverse effects to the tourism industry that would come from a bill that seeks to increase the hotel occupancy tax from 11 percent to 15 percent.
GVB is opposed to the bill, GVB President and CEO Nathan Denight told members of the Rotary Club of Guam on Thursday.
“We definitely understand," he said of the government's revenue shortfall.
However, raising the hotel room tax "is very troubling to our members,” he added.
In an effort to cover a projected $145 million revenue shortfall in the coming fiscal year, Speaker Benjamin Cruz introduced Bill 314-34, which would increase the hotel occupancy tax, and Bill 315-34, which proposes raising the business privilege tax to 5.5 percent. The BPT was at 4 percent before it was temporarily increased to 5 percent earlier this year.
Both tax increases would take effect on Oct. 1, if enacted into law.
Denight said Guam generally is seen as an expensive destination, especially by Japanese tourists.
He said a letter to GVB from the Japan Outbound Travel Council confirms that Guam already is seen as a “relatively expensive destination for what it has to offer.”
Denight also expressed concerns over the impact of the proposed bill to the existing negotiated contracts with travel wholesalers.
According to Denight, hotels negotiate contracts with travel wholesalers up to one year in advance. Most contracts are signed and in place beginning April 1 to March 30 of the following year.
These contracts include all current applicable taxes, including the gross receipts tax and hotel occupancy tax at their current rates.
Denight said should the increase take effect, hotels would be forced to absorb the additional costs throughout their current contracts. In turn, this may affect the hotel’s ability to hire or maintain its current workforce.
Each hotel assesses the gross receipts tax of 5 percent on the room rate and charges the 11 percent hotel room tax on top of that, according to Denight. This adds a 16 percent tax on the hotel room stay. With the 15 percent HOT, the taxes paid on a hotel room night would balloon to 20.5 percent.
Guam’s current average daily rate is $207.75. A 20.5 percent tax amounts to $42.59, bringing the total room-per-day cost to $250.34, according to Denight.
In announcing the new tax proposals this week, the speaker, in a release, said: “I don’t like either of the bills I introduced today, but no one can cut their way out of a $145 million shortfall without catastrophic consequences. The math is simple. If we don’t replace some of the revenue we’ve lost, we will lose much more than money on Oct. 1st.”
Bill 314-34 will be heard publicly on July 16.