Why Our CFO Disagrees With The New Tourist Tax

With the approach of the new tourist tax causing a lot of discussion, we felt it was important to express how PTS views this big change for the industry. A lot of our members and suppliers will be affected by this change, and while it is a change we can adapt to, it is going to be stressful for many.

We discussed what the new tourist tax could mean for the travel industry with the PTS CFO, Tom Clay, and he had a lot of important things to say.

The Intentions Behind Tourist Tax

“The Government is proposing to allow Mayors in England to levy unlimited tourist taxes. The intention is that the proceeds of the taxes be invested to improve tourist infrastructure but the money is not ring-fenced and tourists do not vote. There is no certainty that the money will be used for this purpose.

“But this is not the only reason I disagree with a tourist tax, basically a levy on accommodation. If you raise the price of tourism, you reduce demand. This is a valid use of a tourist tax somewhere like Venice where there is a levy on day visitors who crowd the city but provide little revenue. But the aim in the UK is that the tourist tax should be a levy on accommodation and this is a blunt instrument which can have many unintended consequences.

“The UK wants inbound tourism. Tourists bring money into the economy which is very beneficial especially for the hospitality and service economy which has been hit so hard by the rise in National Insurance and changes to employment legislation. It could be argued that a tourist tax is a small element in overall expenditure on a holiday. But consumers, when choosing their holiday, look at the headline cost of a package not the level of discretionary spending on top and under UK law, that headline cost would have to include the tourism tax.”

Who is Affected By the Tourist Tax

“The tax is equally blunt in its effects on who is included. It is called a tourism tax but is an accommodation tax and catches not just foreign tourists but domestic as well and it will also apply to all those who work away from home in the UK.

“If there is a tourist tax in London it is probable that it will hit hardest those hotels based in less fashionable and less historic areas of London for whom tourist turnover is minimal.

“The tax is also proposed to be charged all year round so it hits not just in high season where arguably there may be over-crowding but also in low season when hotels are hunting for more business.

“To see the effects, it is instructive to look at Edinburgh. There the local council have levied a tourist tax of 5% since 24 July this year which is charged before VAT on the costs of overnight accommodation and cleaning for the first five days of a stay. That sounds simple, but the calculation has proved very difficult for many businesses.

“Would your software allow for the specifics of such a tax? The breadth of the levy may also surprise you. It includes B&Bs and camp sites amongst others. And the levy is charged before VAT and so increases vatable turnover, crucial for small businesses seeking to remain below the VAT threshold.

“Some B&Bs are claiming that it is a tipping point for them and it is no longer economic to keep trading. To be fair, Edinburgh is planning to use the proceeds of the levy to improve some tourist facilities but it is also allocating some money to affordable housing. That is a worthy use but hardly beneficial to tourists.”

Tom’s Conclusion

“So, a tourist tax is a blunt instrument with many unintended consequences, likely to be complicated to calculate and probably hitting hardest those businesses least likely to cater for foreign tourists.”