Following the Assembly Debate on the 5th July 2017 which included statements proposing a Tourism Tax this article outlines some of the arguments against the introduction of such a tax. Whilst it appears there is no immediate prospect of a tourist tax in Wales given the complex legislative hurdles that need to be overcome, this provides an early reasoning as to why we see this tax would be a severe blow to our industry and its competitiveness in Wales.
Whilst the WTA is not opposed to fair taxation, the WTA opposes a Tourism Tax on the grounds that they would harm the hospitality and tourism sector and is simply not a fair tax. In brief:
Background: Council funding has decreased significantly since the recession with successive Government’s imposing cuts that amount to 7.5% reduction funding since 2007/8. As tourism development and marketing is a non-statutory function, it is one area that has borne the brunt of these cuts. The combination of the reduction in funding and the increased responsibilities of councils is leading the Welsh and UK Governments to examine mechanisms for tax and spend locally to raise additional revenue. While there is currently no legal mechanism for councils to impose a tourism tax, NDBRs are collected and paid into the Welsh Government's Non-Domestic Rates Pool and directly redistributed to local authorities as part of the local government revenue settlement. This has raised a precedent and opened the door to examining whether the Welsh Government should raise local taxes – one of which could be a tourism tax.
In 2004 and inquiry was undertaken by Sir Michael Lyons which concluded that there was not a strong evidence base to support the introduction of a tourism tax in the UK. The Government agreed that the case for a tourism tax had not been made and ruled out any further work on this issue. The following draws on some of the findings.
The ‘Tourists Don’t Pay their Way’ argument: Tourism Tax Fairness & VAT
One of the main arguments for the introduction of a Tourism or bed tax is the perception that visitors to a destination do not pay their way. The view is that visitors place a burden on public services and amenities paid for by residents without contributing to the maintenance of those services and facilities. The argument runs that, by imposing a tourism tax, usually in the form of bed tax, visitors can pay the additional costs of maintaining the public realm rather than imposing these costs on local residents. However, this is an overly simplistic way of considering both the taxation of visitors and the impact of visitors on destinations.
First, it is erroneous to think that visitors do not pay their “fair share” of taxes. The World Economic Forum, in its 2015 international tourism competitiveness survey, ranks the UK at 140th out of 141 countries in terms of price competitiveness. This ranking is primarily due to the level of tax that visitors pay. Whereas most European countries operate a reduced VAT rate on the main components of visitor expenditure (accommodation, restaurant meals and attractions) the UK charges full rate VAT on all three. In addition, the UK has one of the highest rates of Fuel Duty in the world (which impacts on domestic visitors) and the highest rate of Air Passenger Duty in the world (which impacts on inbound visitors).
The problem is not, therefore, that visitors do not pay their way, but rather that the tax that tourists already pay is collected centrally by Government and not recirculated to the destinations in Wales. This could therefore continue alongside a new tax specifically for destinations. The visitor will in effect pay twice.
The high level of taxation that UK visitors face is one of the primary reasons why the UK runs a considerable tourism deficit as UK residents seek cheaper holidays overseas. In 2008, this deficit reached almost £21bn before reducing to around £14bn due to the recession. Adding an additional Wales tourism tax to the already considerable burden faced by people holidaying in the UK would simply encourage more people to take their holidays outside Wales or overseas, exacerbate the tourism deficit and reduced the contribution of UK visitors to the Exchequer.
Competitive Overall Taxation
Introducing a tourism tax is feasible where the overall level of tax paid by customers remains competitive with other destinations. It is notable that there is only one European country (Slovakia) that charges a tourism tax while not having a reduced rate of VAT for accommodation businesses.
Similarly, in the USA, while some States have higher tourism taxes than others, almost invariably the states with high tourism taxes have low sales taxes, making the overall level of taxation similar.
The second pre-condition for a successful tourism tax is where the funds collected by the tax are hypothecated to tourism development and promotion. There are many examples of destinations where tourism businesses have agreed to a tourism tax as a means for funding tourism development. In these situations, the funding is usually managed jointly by the industry and the local authority and used to fund an agreed strategy for tourism development.
The UK fails both these pre-conditions. First, as shown above, the UK already has the one of the highest levels of tax on visitors of any country in the world. As such, adding a new tourism tax will simply make the UK increasingly uncompetitive as a destination. Second, in the UK, bed tax proposals are generally put forward as a way for local authorities to fund existing costs, rather than as hypothecated funds to boost development and promotion.
Are Tourism or Bed Taxes Fair?
Even if you were to take it as a UK wide Tourism Tax…the 2015 UKTS and Day Visitor Surveys show that there were a total of 1,649m domestic tourism trips undertaken in the UK. Of these, 1,525m (92.5%) were daytrips where the visitor did not stay overnight. Introducing a bed tax would, therefore, be requiring just 7.5% of visitors to a destination to pay for the costs associated with all visitors.
If that was not inequitable enough, it is doubtful that councils would even be able to gain the tax from this 7.5% of visitors. One problem is that a large percentage of visitors to a destination either stay with a friend or family member, or stay in their own accommodation. UKTS figures indicates that, of the 124m domestic overnight trips taken in the UK during 2015, 38% were by people who stayed with friends, relatives or in their own property. So this leaves just 78m of 1,649m trips where councils would be able to charge bed-tax.
However, there is still the problem that, as there is no statutory registration scheme for accommodation providers, there is no mechanism for councils to develop a comprehensive list of accommodation providers in their area. There has traditionally been a problem in being able to identify self-catering accommodation as the properties will not have any signage and the agencies that handle the properties are often located outside council borders. This problem has been greatly exacerbated in recent years by the growth in companies such as Airbnb where residents are able to have visitors so stay in their private home.
Even then, there is the problem of applicability. Would a bed tax apply to someone pitching a tent in a camping ground or a person who takes their mobile caravan to a caravan site?
The easiest way for Councils to avoid the problems of identification and application would be to simply apply a bed tax to serviced accommodation. However, serviced accommodation (e.g., hotels, motels, guesthouses, inns and B&Bs) is only used in 41.7% of the overnight trips taken and only 30.8% of all the nights that people spend away from home.
This means that a bed tax levied on serviced accommodation would only be targeting 3.8% of the people who visit a destination each year. As such, imposing a bed tax is a highly inequitable way of gaining funds from visitors to a destination and deters the very people who contribute the most in terms of expenditure in the local economy.
The Wrong Sort of Incentivisation
It is well known that many day visitors tend to spend relatively little in the destination that they visit. This is highlighted by the 2015 Day Visitor Survey which shows that a day visitor spends just £35 per day with local businesses, much less in Wales. This is almost half of the £66 that the average overnight visitor spends per day, with accommodation providers and restaurants at the destination being the main recipients of this additional expenditure.
Wales Tourism Alliance
(Ref: Sources: ETA, 2017; Findings of the Lyons Inquiry, 2004; WTA Membership)