Tourism is widely seen as something of a double-edged sword. On the one hand, it can bring huge amounts of money to a country and create jobs for many people. On the other hand, it can often exacerbate inflated property markets and contribute to the overcrowding or the slow degradation of a once beautiful area.
Many people rely on tourism for their livelihood, and for these people, the prospect of taxing tourists and deterring swathes of visitors is not popular. However, others believe that tourist taxes should be used to combat the issues that only arise because of tourism.
Many countries do not have any tourist taxes, while others charge hundreds of pounds per day just to be there. There is a delicate balance between setting tax rates that will bring in a substantial amount of money and not putting them so high that all visitors are put off from ever coming.
We are going to explore tourist taxes, what they are, how they work, and the different forms they come in.
Tourist taxes are any taxes levied on activities related to tourism. These may include indirect taxes on things such as hotel accommodation and restaurants and direct taxes on arrival or departure from the host country, or even a tax paid per day of the visit.
Direct taxes are taxes that are solely levied on tourists, whereas indirect taxes are taxes that are levied on activities relating to tourism but which may also be done by domestic people, such as staying in hotels.
So let's start by jumping in and determining the purpose of tourist taxes.
Tourist taxes are levied to help combat the issues brought about by tourism. They are used as a way of shifting the tax burden created by tourists onto tourists.
For example, if a local council has to spend a lot of money on keeping a beach clean when the tourists come every summer, the government may levy a tourist tax to help pay for the costs rather than having domestic taxes pay for the problem.
Tourist taxes can also be levied to simply try and limit the annual tourist numbers while ensuring no revenue is lost by reducing those numbers.
So let's look at a simplified example. If a country had 1 million tourists a year, each contributing £10 to the economy, the tourism industry would be worth £10 million. If that country wanted to reduce the number of tourists by half as they were causing damage to the local environment, they could introduce a £10 tourist tax to deter 500,000 people from coming. So now the 500,000 who come each still contribute £10 by visiting, but they also pay £10 in tax. This means the country makes no losses by reducing the number of visitors.
The revenue brought in by tourist taxes can also be used to help promote and develop sustainable tourism that ensures that host countries and provinces are well looked after.
Conversely, governments may also limit tourist taxes or have none at all to encourage tourists to come and visit as the economy is dependent on them, which is what we do in the UK.
There have been instances in which governments have reduced tourist taxes to boost the industry during times of particular hardship. We will explore this in greater detail a bit later.
Tourist taxes can either be direct or indirect. A direct tax is a tax that is levied on a specific person or type of person. An indirect tax is a tax that is levied on goods and services and is, therefore, paid by anyone who consumes those goods or services.
Here, we will take a look at some of the most common types of tourist taxes.
Per day or per diem taxes
A per diem tax (Latin for "per day") is a tax that tourists must pay to visit a country or an area within a country. It is a direct tax as only tourists are required to pay it.
For example, Bhutan currently charges between $200 and $250 per person per day, depending on the tourist's country of origin. Bhutan has the lowest levels of carbon emissions in the world and wishes to protect much of its beautiful scenery, hence a hefty tourist tax.
Hotel taxes are indirect taxes paid by visitors staying in hotels and other types of temporary accommodation.
Many countries in Europe charge hotel taxes in addition to the standard rate of VAT that is levied on services, including accommodation. Most US states also charge a hotel tax, though the rate varies throughout the country.
All hotel users, including domestic travellers, are charged for their stay. However, some countries make exemptions for business travellers.
In some countries, such as Holland, people staying on cruise ships docked in Dutch harbours are charged a separate cruise ship tax for their overnight stays.
There may also be a tax levied on restaurants that can be regarded as an indirect tourist tax.
While restaurant taxes will obviously also affect local people who dine out, the local authorities may only choose to levy the tax on restaurants in certain areas that are particularly popular with tourists.
Arrival and departure taxes
Arrival and departure taxes do exactly what you would expect; an arrival tax taxes tourists upon entering the country or area, while a departure tax taxes them as they leave.
Venice recently introduced an entrance fee of 10 euros, and some countries, such as Laos, charge visitors at a different rate depending on where they are from as they arrive at the airport. This is the norm for countries that charge an arrival tax, though many will include it in the price of the plane or boat ticket that is used to enter the country.
As of 2019, New Zealand charges an arrival tax of NZ$35 upon entry, which was brought in to raise an additional NZ$80 million per year and reduce the number of tourists by 20,000.
Arrival taxes may also be charged as part of a visa fee. In this instance, the tourist pays a fee to purchase a visa to enter a country. Some of the proceeds go to administrative costs for processing the visa, while the rest is added to the tax budget.
Most Caribbean countries have departure taxes, as do other countries such as Australia, Japan, Hong Kong, Canada, and many more. Again, the cost of the departure tax will usually vary depending on where you are from and how you have travelled to and from the host country.
The UK does not currently have any direct tourist taxes. However, there are high taxes on departing long-haul flights, which some regard as a departure tax, though this is levied on all flight users.
Tourism taxes in Wales recently made the news, as the Welsh government said it was considering bringing in a per diem tax for any overnight visitors. This would include visitors from other parts of the UK. The policy has been criticised as a form of bed tax that will impact British people who have family living in Wales. The tax has not yet been implemented and is still under review.
In July 2020, during the Covid-19 pandemic lockdowns, former UK Chancellor Rishi Sunak announced a number of temporary policies designed to boost the tourism and hospitality industries, both of which had been hit hard by the pandemic.
The announcements included a temporary reduction in the VAT rate from 20% to 5% on activities related to tourism. The VAT reduction was initially set to last until January 2021, though it was extended to September that year. VAT on tourist activities was then raised to 12.5% before returning to 20% in March 2022.
When both direct and indirect factors are considered, tourism in England alone contributes around £106 billion to the UK economy every year and provides around 2.6 million jobs.
If we only consider direct factors, tourism in England still contributes around £48 billion and provides 1.4 million jobs.
The UK-wide tourism sector is estimated to be worth around £130 billion annually.
Tourist taxes are taxes levied on activities typically undertaken by tourists. They can generate huge amounts of revenue for both the local government and the national government. The money brought in by tourist taxes is often used to offset some of the issues created by tourism. Although tourist taxes may reduce overall visitor numbers, the money they bring in usually makes up for this.
Some countries have high tourist taxes, some only have a few low ones, and others have none at all. So, next time you are considering a holiday abroad, look into the tourist taxes the country charges otherwise, your trip may end up being more expensive than you initially thought!