Yesterday, the Majorcan Federation of Hotels (FEHM) announced that a ten percent rise in VAT from the current eight percent to 18 percent will lose the Balearics an estimated 1.6 million tourists per year and lead to the closure of 700 businesses.
In a letter to the Minister for Industry, Energy and Tourism, Jose Manuel Soria Lopez, the hotel federation clearly spelt out its concerns about any further increases in VAT and spelt out its repercussions.
A copy of the letter, with a detailed report of their findings, was also sent to the President of the Balearics, Jose Ramon Bauza.
The federation described an increase in VAT as lethal for the tourism industry. Tourism is the only sector which is managing to combat the recession, putting up VAT would be a killer blow, the federation claims.
According to the results of study commissioned by the federation, at the moment with VAT at eight percent, some 2'430 million euros is generated by holiday makers coming to the Balearics who in turn help sustain 108'930 jobs.
But, a ten percent increase in VAT will lead to an 82 million euro reduction in revenue from tourism and nearly 21'000 jobs lost.
The director of the federation, Inmaculada Benito, wants VAT to be frozen for the hotel industry and the tourist sector so it can continue to take on its main competitors, such as Greece. But any increase in VAT will lead to a rise in operating costs and that will significantly reduce the region's competitiveness and that will hit an industry upon which the large part of the Balearics depends, either directly or indirectly, she stressed.
Benito also said that the same letter and report was sent to the Secretary of State for Tourism, Isabel Borrego, the Balearic Minister for Tourism, Carlos Delgado and the Balearic deputy finance minister some two weeks ago, but as yet, the federation has not received any reassuring responses.
In the meantime, airport taxes did go up on July 1 and thousands of foreign holiday makers have been caught.
Some airlines are passing the new departure tax on to passengers, even if they booked their flights months ago.
And some passengers have received emails telling them either to pay an extra charge of up to seven euros (£6) per person - or to cancel their flights.
Other airlines are still deciding whether to absorb the cost themselves.
The budget airline Ryanair said Spain's 2012 budget, passed into law at the end of June, obliged airlines to pay increased taxes.
Spain is implementing drastic measures to try to slash its budget deficit to 5.3 percent from 8.5 percent in 2011.
It has been promised bailout funds of up to 100 billion euros for its banks, but wants to avoid a full state bailout.
The European travel agents' association ECTAA said the amount of the extra levy varied depending on which airport people used.
It said the average rise in the tax was 18.9%, but at some of the larger airports it would almost double.
ECTAA said in a statement it was dismayed by the rise, which was imposed without proper consultation of airport users nor appropriate implementation time.
It said travel agents faced a technical and financial nightmare to recover the extra charge.