Viewpoint... is a regular feature, inviting key individuals to comment on the issues facing the Scottish Tourism Industry.  Prof. Brian Hay; University of Strathclyde and Mr Martin Couchman; British Hospitality Association discuss the pros and cons of Tourism Taxation.

Please note all Viewpoint...articles are not policies of VisitScotland but individual opinions of the authors. The material should not be regarded as specific advice and no action should be taken with reliance on it. Neither the authors nor VisitScotland accepts any liability whatsoever for any loss or damage in any way of reliance placed upon the material.

A Tale of Two Taxes

For - Professor Brian Hay, Strathclyde University
Against - Mr Martin Couchman, British Hospitality Association

Is it Time for a Tourism Tax?

Professor Brian Hay; Scottish Hotel School, Strathclyde University

Prof. Brian Hay

‘There is no worse tyranny than that of the status quo’ Milton Freidman The Scottish Executive has set a target to double the value of tourism in the next ten years, now is the time to be bold and ask how will this growth will be funded. One way to support this growth is through a tourism tax, this would be supportive of the widely held concept that ‘the user should pay’. To make it more acceptable it could be called a Tourism Development or a Tourism Improvement Tax? Tourism Taxes are Already Here? When we go on holidays overseas we already pay an UK Air Passenger Tax of up to £40, just to leave the country. In the USA, it is common for tourists to pay both a County and a State accommodation tax - such taxes are used to fund major public facilities, used by both locals and tourists. In Australia, tourists pay a conservation tax to protect the Great Barrier Reef, and Spain has a higher rate for 5 star hotels.

How Much to Pay
The two options are a percentage of the bill, or a fixed cost of £1-£3, perhaps based on star rating. Small businesses could be exempt from imposing such taxes.

Alternative to Direct To Taxes
An alterative may be a direct levy on tourism businesses that directly benefit from national and local marketing. In the Gold Cost in Australia, local tourism businesses pay levies for general tourism promotions, in addition to any specific marketing activity that they pay direct. Visitors to Russia will have encountered dual pricing at major attractions, and will often pay twice as much as locals. In India, overseas visitors have to pay about 20% more than locals for staying in hotels and up to 100% more on internal flights.  

Questions to Ask
Who should set the tax rate?
Should it be on a per room or per visitor charge?
Should there be exemptions for small businesses?
Who should collect it?
Should it only be charged at peak periods – would help to spread the session?
Should it only be payable in certain parts of Scotland, such as National Parks?
Should any tax be hypothecated – that is used for specific purposes such as local marketing or contribute towards preserving our National Parks and historic buildings?

Think Big, Think Different, Think Bold
With devolution there is a greater scope for thinking differently about taxes. Taxes could be used to encourage poorer operators to leave the industry; they could be used to ‘buy them out’, and so increase the overall quality of the sector. We already use ‘set aside’ in agriculture so why not use any tourism tax to buy out poor tourism operators?

Let us be bold and ask the difficult question on how we will pay for the targets set in Scottish Executive Tourism Strategy – do we believe that those who benefit from any growth in tourism should contribute towards its costs, or is the tax payer expected to pay increasing taxes?   

Against the Tourist Tax

Mr Martin Couchman; British Hospitality Association

Mr Martin Couchman

Why is the possible introduction of a bed tax such bad news for the tourism industry?   For a number of reasons: 1.  Why pick on the hospitality industry and on overnight visitors – both domestic and from overseas?  Hotels pay their share of business rates, which are reflected in their prices.  So overnight visitors already help fund local authorities.  Why punish the industry more heavily? 2.  It puts in jeopardy the industry’s future growth.  Britons make over 60m visits abroad every year – and rising.  The country’s present imbalance of tourism payments could reach £20bn this year; it has risen inexorably in the last 15 years..  Making Britain’s hospitality industry even more expensive by introducing a bed tax will encourage more British  people abroad and deter many overseas visitors.  Already, Britain has a reputation as a high priced tourism destination; when we are trying to boost tourism earnings, what is the point of making it more expensive?  It is estimated that the 2012 Olympic Games will earn the country an additional £2bn – yet a bed tax (at what rate in 2012?) would be a significant deterrent to reaching this target.

3.  It has the potential of being hugely iniquitous.  If local authorities are given powers to raise a bed tax it is inevitable that there will be differences in approach and possible tax levels between them.  A bed tax applied by some local authorities at a certain level and not by others would be potentially damaging to businesses in affected areas.  Yet businesses (which are most affected) have no vote to try to overturn any local authority tax-making decisions.

4.  Hotel guests comprise less than 40 per cent of overnight accommodation stays yet they will be punished more severely than others on holiday or on business. Some 60 per cent of people stay in rented accommodation, second homes, timeshare, camping and towed caravans or stay with friends and relations.  These groups would almost certainly have to be excluded from any tax, due to the practical difficulties of collection.  There is no statutory register of serviced accommodation and it is difficult to see how all accommodation, other than hotels, would be easily sourced.  

5. The Treasury is likely to insist that a bed tax at the level of five per cent indicated in earlier suggestions by the Local Government Association, would be subject to VAT.  So a hotel stay in an average £60 (exc VAT) UK regional hotel room would carry a total tax of just over £14 per night, giving an overall tax rate of 23.6 per cent.  This would add almost £100 to the bill of a family of four staying for a week in a room charging this rate.  It would also bring the total tax take near to the highest VAT rate in the EU – Denmark’s 25 per cent.  A bed tax at a higher rate – some suggestions are as high as 10 per cent – would have an even more damaging impact.

6.  It will lose us customers.  Research by Nottingham University shows that a one per cent rise in prices relative to other countries leads to a one per cent decrease in international tourism.  Research by VisitBritain gives a higher (1.4:1) loss ratio for international tourism.    Applying the lower Nottingham University figure, a bed tax applied across the UK could reduce international tourism revenues to the UK by about £220m and domestic revenues by around £325m.  This would cost the Exchequer over £200m in lost taxation, with nearly half lost on international tourism being totally irrecoverable.

These are significant objections, which the BHA has already submitted to the Inquiry by Sir Michael Lyons into local authority funding.  The Tourism Alliance has also submitted its objections and there is widespread industry agreement about the lack of wisdom in proposing such a tax and its unfair impact on the industry. We hope Sir Michael takes note.  

Research and Position Statement
To see the Edinburgh Tourism Action Group commissioned research and VisitScotland position statement on this subject, click here

Professor Brian Hay, Strathclyde University
Mr Martin Couchman, British Hospitality Association
June 2006

Previous Viewpoints - Archive

Past features from invited key individuals commenting on aspects of scenario planning.