The Federation wishes to brief members on the latest official information concerning the hotel sector, following the written reply given by the Secretary for Financial Services and the Treasury in the Legislative Council on 18 March 2026 in response to a question raised by Hon Perry Yiu, Pak-leung regarding the operating situation of the hotel industry.

At the outset, we would like to express our sincere appreciation to Hon Perry Yiu for continuing to follow up on this issue on behalf of the trade and for raising in the Council a number of matters of direct concern to hotel operators, including the performance of the Hotel Accommodation Tax (“HAT”), the operating environment of the industry, the future supply pipeline, and whether the Government would reconsider the current HAT arrangements.

For members’ reference, the full question and official reply may be accessed at the following links:

• Chinese: https://www.perryyiu.com/tc/assembly-detail/106
• English: https://www.perryyiu.com/en/assembly-detail/106

This circular summarises the key points arising from the Government’s reply and sets out the Federation’s observations from a hotel-trade perspective.

1. 2025 HAT outturn now clearer

As members are aware, the Government resumed HAT at 3% with effect from 1 January 2025. In the 2024-25 Budget, the Government estimated that the tax would generate approximately HK$1.1 billion per annum. A later official reply in September 2025 referred to a lower annual estimate of HK$970 million.

According to the latest official reply issued on 18 March 2026, the Government collected approximately HK$180 million in HAT for Q3 2025 and HK$240 million for Q4 2025. When combined with the previously known figures for the first half of the year, the full-year 2025 outturn can now be presented as follows:

Table 1: 2025 Hotel Accommodation Tax collected by quarter

The full-year total of HK$780 million was materially below both the Government’s original Budget estimate and the later annual estimate subsequently referred to in official replies.

Table 2: Government estimate compared with actual 2025 HAT outturn

From the hotel trade’s perspective, this difference is significant. Since HAT is levied at 3% of accommodation charges, the tax outturn indicates that the taxable accommodation revenue base achieved in 2025 was materially lower than the level assumed when the tax was reinstated.

2. What the tax outturn implies about hotel room revenue

On a simple reverse-calculation basis, the HAT figures imply the following taxable accommodation revenue:

Table 3: Implied taxable accommodation revenue from HAT

To better understand the scale of the Government’s assumptions, it is useful to compare these implied revenue levels against the number of hotel rooms subject to HAT. Based on the Government’s published monthly data, the average number of hotels subject to HAT during 2025 was approximately 86,180 rooms, equivalent to about 31.46 million available hotel room-nights for the year.

On that basis, the implied taxable room revenue per available hotel room-night is as follows:

Table 4: Implied taxable room revenue per available hotel room-night

Based on hotels subject to HAT only

This comparison illustrates the extent to which the Government’s original estimate assumed a stronger room revenue environment than what was actually achieved in 2025.

Even allowing for the fact that not all occupied room-nights are taxable, and that long-stay accommodation of 28 consecutive nights or more is exempt, the gap remains material.

3. Implied ADR under different occupancy assumptions

For further illustration, the implied taxable room revenue can also be expressed as an implied ADR under different occupancy assumptions. This is not intended to represent actual market ADR, but rather to show the level of hotel room pricing and revenue intensity that would have been needed to support the Government’s original tax expectation.

Table 5: Implied taxable ADR under different occupancy assumptions

Based on hotels subject to HAT only

The figures above reinforce the view that the Government’s original estimate was based on a materially stronger assumed room-revenue position than what the market ultimately delivered.

4. Government’s position and the hotel trade’s perspective

In its latest reply, the Government stated that it had fully taken into account the impact of the tax on visitors and the industry when deciding to resume HAT. It further stated that, as HAT represents only 3% of room charges and only a small part of total overnight visitor spending, it does not consider the tax likely to affect visitors’ interest in travelling to Hong Kong. The Government also noted that, according to Hong Kong Tourism Board statistics, the average hotel occupancy rate and the number of overnight visitors in 2025 increased by around 2% and 6% respectively over 2024.

While these points form part of the official policy rationale, members will appreciate that hotel operating conditions cannot be assessed solely by visitor arrivals or occupancy movement. From an operator’s standpoint, market performance depends on the interaction of occupancy, ADR, segment mix, length of stay, distribution cost, and overall net yield.

In this regard, the latest Hong Kong Tourism Board Tourism Overview indicates that ADR for the hotel trade declined by around 5% in 2025. This is a significant consideration. It suggests that, despite some recovery in overnight arrivals and occupancy, the market continued to face pricing pressure and weaker revenue quality.

In other words, the core issue is not simply whether more visitors came to Hong Kong, but whether those visitors translated into room revenue at sustainable rates. If occupancy improved only modestly while ADR softened, then the market was absorbing demand at a lower yield. In such circumstances, it would be too narrow to conclude that HAT had no meaningful effect simply because headline visitor volumes improved. A room tax may not necessarily suppress demand in an immediately visible manner, but it can still affect competitiveness, promotional flexibility, and hotels’ ability to defend room rates.

5. Government has no plan to adjust HAT at this stage

In response to the question of whether the Government would reconsider reducing or suspending HAT, the official reply states that the Government considers the collection of HAT over the past year to have been smooth and in line with policy objectives, and that it currently has no plan to adjust the HAT rate.

The Government also reiterated that HAT forms part of general revenue and is not earmarked for targeted support to the hotel or guesthouse sectors. Instead, it pointed to broader tourism support measures, including the HK$1.66 billion allocated to the Hong Kong Tourism Board in the 2026-27 Budget for destination promotion and visitor attraction.

These promotional efforts are welcome and should be recognised. At the same time, from the Federation’s perspective, there remains a policy tension between using substantial public resources to attract more overnight visitors while maintaining an accommodation tax during a period when ADR has softened and operating margins remain under pressure. If the objective is to strengthen overnight tourism yield and support hotel performance, the effect of HAT on room-rate competitiveness deserves continued review.

6. Government reply on hotel supply and project pipeline

The latest reply also updates the market on hotel project approvals and projects under construction.

Table 6: Government-reported hotel pipeline figures

The Government also stated that it does not maintain statistics on:

• hotel or guesthouse projects that have been shelved;
• guesthouse-related pipeline information in the Buildings Department context; or
• the number of hotels or guesthouses that have applied for change of use.

This is relevant because, while official pipeline figures are useful as a broad indication of supply activity, members should not interpret them as a definitive measure of future effective hotel-room supply.

Headline stock or pipeline figures do not fully capture a number of issues that may materially affect the volume of tradable room inventory actually available to the market. It may overstate effective transient supply if rooms are used for service apartment/long stay, student hostel, youth hostel, or other non-traditional purposes; some projects may experience delayed launch, phased opening, or incomplete commercial rollout; and some rooms may continue to appear in official stock counts but may not be fully participating in the transient hotel market in practical terms.

For these reasons, official supply numbers should be treated as broad reference points rather than as a precise measure of effective competitive hotel supply available to the trade.

7. Outlook and Federation advocacy priorities

In summary, the 2025 HAT outturn indicates that the taxable accommodation revenue base achieved by the hotel market was materially below the level originally assumed by the Government. When read together with the latest indication of ADR weakness in 2025, the data suggests that hotel operating conditions remained more challenging than may be implied by a headline reading of occupancy and overnight visitor growth alone.

At the same time, the Federation remains cautiously positive on the medium-term outlook for Hong Kong tourism and the hotel sector. With new tourism strategies, strengthened destination promotion, and continued efforts to attract a broader mix of overnight visitors from both established and emerging source markets, Hong Kong continues to hold a strong position as one of the region’s leading and most competitive hotel markets. The city’s connectivity, brand recognition, service standards, and ability to host both business and leisure demand continue to provide a solid foundation for recovery and future growth.

Against this backdrop, however, cost control, productivity improvement, and the protection of operating margins will remain key concerns for the trade. These will therefore continue to form an important part of the Federation’s advocacy priorities in the year ahead.  We warmly welcome any feedback or comments that may help strengthen our liaison, representation, and advocacy work for the benefit of the hotel industry in the year ahead.