When the recent business rates crisis broke it sent shockwaves through the hospitality sector and left many hoteliers facing an uncertain future unless there is drastic reform of the current ratings system. But another levy lurking in the shadows – tourist tax – could prove just as controversial.
The debate around whether or not a tourist tax, also known as a ‘bed levy’, should be introduced here has been ongoing for more than a decade, mainly in Edinburgh but more recently in Aberdeen and the Highlands – and it shows no sign of going away.
While local authorities have no legal power to impose it and the Scottish Government has consistently said that it has no plans to grant them the power to do so (which would involve primary legislation), the issue still continues to rear its head from time to time.
So what are the arguments in favour of such a levy and what would it mean for hoteliers?
Proponents argue that a tourist tax, which could see around £1 a night added to a typical hotel bill, could be used to boost investment in tourism infrastructure and visitor attractions, marketing and events, as well as compensating for visitor impacts or simply helping to balance the books in the wake of public spending cuts.
Edinburgh City first proposed a levy in 2011 but the idea was scrapped in 2014, before being resurrected again when council bosses included a ‘Transient Visitor Levy’ (TVL) in proposals for the City Deal put forward to the UK and Scottish Governments last year. He continued,“ Those in favour argue that it could raise up to £15 million annually for the city.”
Julia Amour, Director of Festivals Edinburgh, believes there should be a debate on alternative sources of income for the Capital, which attracts around four million visitors a year.
She says, “In the current climate of government funding, there is a need to find alternative resources to support our very successful festivals in order to maintain their quality and significant economic impacts.
“We are working in active partnership with our public and private sector colleagues in Edinburgh to explore a range of options on alternative funding. In that context the recent Thundering Hooves report encouraged the wider business community to invest in the festivals from which they so greatly benefit, so that together we can secure Edinburgh’s enviable position as an internationally renowned cultural and tourism destination year-round.”
In January Former Justice Secretary Kenny MacAskill said the time had come to introduce a tourist tax. He wrote, “So the time has come for a tourist tax. Available to local authorities that wanted it, like the major cities that have to provide for the attractions that bring them…Council tax payers cannot be expected to bear all the burden, especially when council tax is rising, when their own trips abroad are costing more – and where they’ll likely be paying a tourist tax themselves.”
In Edinburgh there is an argument for a levy to help support the city’s cultural infrastructure, including the various festivals and events the Capital hosts each year. Aberdeen City Council also wants to introduce a charge and Glasgow has looked at it as a possible local taxation option.
But where does this leave the hotel trade? Scotland is already an expensive place to visit and recent research by the British Hospitality Association (BHA) found that visitors to the UK pay more in taxes than they do in other comparable European destinations, through VAT and Air Passenger Duty, and a tourist levy will only add to that burden.
The World Economic Forum Travel & Tourism Competitiveness Report 2017 ranked the UK
fifth out of 141 countries in terms of overall appeal as an international visitor destination, but 140 out of 141 in terms of price competitiveness – so we are an attractive destination, but expensive too.
Anumber of major European cities, including Paris, Venice, Florence, Berlin and Barcelona, already charge a hotel tax but the VAT rate in those countries tends to be much lower than it is in the UK.
The Scottish Tourism Alliance believes that a tourism tax would likely discourage visitors from coming to Scotland.
A spokesman says, “We acknowledge the need for an increased level of long term sustainable investment across our destinations for marketing, to improve the quality of the offering, visitor experience and overall appeal of the destination, however in our view, introducing a ‘tourism tax’ is more than likely to discourage international tourists from visiting Scotland and negatively impact our local economies.
“The UK already imposes more tax on visitors than most of our competing destinations and there is a significant risk of further damaging Scotland’s appeal as a tourism destination by applying a further cost to visitors.”
Willie Macleod, BHA Director for Scotland, is also clear about what the tourist tax would mean and says the BHA and the hotel industry are fundamentally opposed to it because it would make us less competitive.
He adds, “To argue for tourist tax without looking at other taxation on hotel rooms is comparing apples and pears. It’s ill-informed and it does not understand our industry.
“Our fundamental objection is based on price competitiveness and the fact that a tourist tax would further affect our poor price competitiveness. To suggest that visitors are not price sensitive is nonsense – we all look at prices when we book somewhere.
“I think it’s naive and disingenuous to assert that tourist taxes work in other countries – where
the tax is applied in Europe this is usually where they have a much lower rate of VAT than we do.
“A number of major European cities, including Paris, Venice, Florence, Berlin and Barcelona, already charge a hotel tax but the VAT rate in those countries tends to be much lower than it is in the UK”
“At the BHA we have been campaigning for a reduction in tourism VAT – at the moment there is – 20% VAT on a hotel room and many of our competitors in Europe are charging rates that are considerably lower than that. For example the Republic of Ireland has VAT on a hotel room at 9%, France and Spain are at 10%, Sweden is 12% and Germany is 7%.
“Our argument is that there shouldn’t be any talk of any additional taxes on our visitors when we’re charging 20% VAT.”
Brett Davidge, General Manager of Apex City Quay in Dundee and Chairman of the Dundee & Angus Visitor Accommodation Association agrees. He says, “It hasn’t really come up on our agenda yet – we are taking our lead on what will happen in Edinburgh but as Association members we are opposed to any further tax on our guests.
“There is a lot of tax on our customers already and this makes it a struggle to compete with countries that don’t charge so much tax. This is a tax on top of that really. “There are also a lot of unanswered questions that could potentially come up about the tax and if it is forced upon us we would like to understand how that tax is spent to benefit the industry.”
One of the main economic arguments for the tax is the costs visitors impose on their hosts in terms of increased congestion, pollution, queues at popular attractions and untidy environments – but again Willie disagrees.
He says, “The argument that visitors don’t contribute is nonsense. They contribute through their spending, they support businesses, and they support direct employment in the tourism industry and indirect employment in the wider supply chain. They are also contributing through VAT and their spending with hotels and other tourism businesses allows these firms to pay business rates – and hotels pay very significant business rates already – so there is a contribution.”
The marketing argument is also a non-starter for the BHA. Willie points out, “Many hotels already support their local destination organisation through membership subscriptions, contributing to marketing initiatives and in some cases paying a commission on bookings. Hotels are also promoting the destination through their own marketing and reservation systems.”
The fact that a tourist tax would only be imposed on commercial accommodation like hotels raises questions too of equity and fairness. What about other venues including B&Bs, self-catering, hostels – or visitors who stay with friends or relatives? They still impose costs on a destination.
Willie adds, “Why should a tourist tax be imposed only on hotels? What about other businesses like restaurants, taxis, theatres and so on that also benefit from tourists? If tourism is everyone’s business, then our argument would be that hotels shouldn’t be singled out for this kind of additional levy.”
There is also a lack of clarity over what the monies raised would be used for, who decides how to spend it and at what level a tourist tax would be set at and for how long. When does £1 a night become £2 or £5 and could hotels claim back their set up and administration costs?
Atourist tax scheme in Rotterdam, Holland, was abandoned in 2006 because the city council lost business support after diverting monies raised to non-tourism activities. Similarly in the Balearics, an ‘eco-tax’ failed because it was seen as too expensive for visitors and there had not been enough consultation before it was introduced.
Willie concludes, “Some of the arguments for a tourist tax are pretty disingenuous, pretty ill-informed and pretty naive and don’t really take into account the realities of running a hospitality business in the 21st Century. “It is too easy to say we need to start taxing our visitors because they don’t contribute. My view is that proponents of the tourist tax are just not listening to what the hotel industry is saying.”
All of which makes it even more pressing for hoteliers to play an active part in the debate around this issue and to ensure their views are being heard – the future of our businesses could absolutely depend on it.