Pedro Ruiz, CEO of Portugal's largest health club chain Vivafit, has warned that up to a third of health clubs in the country could be forced to close due to the government's decision to increase VAT on fitness from 6 to 23 per cent.

The raising of the levy comes just two years after the government cut VAT on fitness and all supervised physical activities from 19 per cent to just 5 per cent.

VAT since rose to 21 per cent, and the fitness tariff to 6 per cent, but now fitness is being pushed back in to the general VAT category, which rises to 23 per cent in January.

Speaking to Health Club Management, Ruiz accused the government of 'persecuting' the fitness sector.

"Since the government's announcement of the increase in tax, the number of membership cancellations at clubs has skyrocketed to levels never seen before," he said.

"As a result, hundreds of fitness clubs are already closing doors and I expect at least 30 per cent of fitness clubs to close doors during 2011."

He said that the Portuguese fitness association Associação de Empresas de Ginásios e Academias de Portugal (AGAP) has already initiated an action plan in an attempt to try and revert the increase - due to come into force on 1 January.

"Working together with the European Health and Fitness Assocation (EHFA), AGAP will present a formal report of this persecution against the fitness Industry in Brussels."

Ruiz did, however, admit that the government's decision was taken mainly due to the reluctance of fitness operators to pass the cut in VAT in 2008 directly to members.

"This tax rise is an obvious retaliation from the government for the fact that most fitness clubs did not decrease their prices immediately when VAT was cut from 20 to 5 per cent in 2008."

Nick Coutts, the former CEO of Holmes Place Iberia, another large operator in the region, also blames the clubs' slow reaction to the VAT cut in 2008 for the government's decision to hike the tax back.

"It's absolutely clear that the fitness sector is to some extent continuing to pay the price for not 'playing ball' three years ago," Coutts said.

"The government decision to clarify VAT at a significantly reduced rate back in 2008 was definitely a positive one, but the communication process was flawed as the government also advised members to 'expect' a mandatory significant subscription rate discount from their clubs.

"Members were even encouraged to submit legal claims against operators who did not pass on the full value of the VAT reduction with immediate effect

"Several operators did lower prices, but these reductions were implemented during a six to 18-month period following the VAT reduction. Meanwhile clubs ran the gauntlet of upset members and various government agencies, whose mood was bolstered by extremely subjective and quite aggressive media coverage.

"In hindsight it's clear that many operators did not communicate their pricing and VAT strategy well enough to their members, and consequently paid the price in terms of a significant loss of 'goodwill' from key stakeholders across the sector."

Coutts added that clubs in Portugal are now facing three options when the new rate of VAT comes into force.

"The first option is to increase prices, but this is sure to anger existing members and make new joiners even more of a challenge.

"Even if clubs decide to maintain current prices, they are unlikely to receive too much gratitude from members as they are sure to see it as the club's obligation to their loyal members.

"Clubs could, however, implement a 'hybrid' approach - maintaining prices for existing members and increase prices for new joiners.

"The risk with that is that although it seems to make the most sense, in reality it means that clubs will suffer a massive fall in margin and profits from existing database revenues, while at the same time gives them a far tougher task in generating new sales. And that during a time that the Portuguese economy is suffering its worst period in decades."

"Whatever the solution different operators commit to, it's clear that a large number of clubs will be wiped out across the Portuguese market during 2011, due to a combination of margin reduction, increased leavers and fewer joiners."