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Destinations introduce tourist tax in attempt to control swelling visitor numbers

Tourist destinations increasingly lack the infrastructure and resources to manage snowballing visitor numbers. While tourist taxes have provided some relief, the creation of a sustainable tourism market will require a more holistic approach

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In 2018, international tourist arrivals increased by six percent, a jump that the UN’s World Tourism Organisation described as “remarkable” 

The tranquil canals and smoke-filled coffee shops of Amsterdam have long attracted an array of tourists. Indeed, the Netherlands’ capital has universal appeal – from the backpacker seeking a glimpse of its notorious nightlife to the business traveller visiting the Zuidas financial district or the family touring the city’s celebrated museums.

Today, however, the Netherlands is struggling to contain an overtourism problem. With visitor numbers swelling, the Netherlands Board of Tourism and Conventions has even announced it will stop actively marketing the country to tourists, choosing instead to prioritise ‘destination management’ over ‘destination promotion’.

Amsterdam is not alone in its decision. Heaving crowds in Paris caused Louvre staff to unexpectedly close the museum one day in May, while local protestors have taken to the streets of Barcelona and Venice to voice their concerns about the detrimental effect rising tourism is having on their quality of life. Furthermore, in a bid to grapple with the negative impacts of an industry that accounts for more than 10 percent of global GDP, a growing number of countries have started to experiment with tourist taxes.

Crowding out
According to the UN’s World Tourism Organisation, there were 1.4 billion international tourist arrivals in 2018, up six percent on the previous year. The group said the industry reached this milestone two years ahead of schedule as a result of “remarkable growth”.

The goal of any tourist tax is the same: to raise funds to counter the negative impacts that come with a high volume of visitors

For Freya Higgins-Desbiolles, a senior lecturer in tourism management at the University of South Australia, the overtourism problem has grown from a lack of coordination among stakeholders, including multinational corporations, tourism groups, local governments and travellers. She said this can be blamed on the industry’s “more tourism is better” mentality, which has led marketing groups to overpromote destinations and governments to slash regulations in the interest of fostering growth.

While Tim Fairhurst, Director of Policy at the European Tour Operators Association (ETOA), disagrees with the term ‘overtourism’, he told Business Destinations: “We have to recognise and mitigate tourism’s negative impacts, and this is largely a question of better management and product development. Fundamentally, this is about how we share our spaces, resources and assets, and it requires a long-term policy response informed by proper consultation.”

Tourist taxes are one strategy that dozens of cities use to redistribute money to public resources. “Tourists and the tourism industry are often not actually paying the full costs of their travel, and they are externalising environmental and social costs onto others,” Higgins-Desbiolles said.

According to Rochelle Turner, Vice President of Research and Insight at the World Travel and Tourism Council (WTTC), tourist taxes share the same aim as any other tax: to nudge human behaviour in a certain direction. “Taxes can always be instruments that help move people into one behavioural type or another by… either [stopping] them doing things or [giving] them choices about what option they may want to choose over another,” she told Business Destinations.

Just this year, Venice and Edinburgh announced plans to introduce tourist taxes. Edinburgh has proposed an occupancy tax on hotels of £2 ($2.51) per room per night for a maximum of a week. Venice, meanwhile, has introduced a tourist booking system and a €3 ($3.37) flat rate for visitors. By 2020, this charge could rise as high as €10 ($11.23) on the city’s busiest days.

A helping hand
Tourist taxes are not a particularly new invention. In fact, ETOA data suggests that 19 of the 28 EU member states already have some form of tourist tax in place – in many cases, tourists have unknowingly paid the added cost in the form of a few dollars tacked onto their hotel or airline ticket. Rates vary by city and country, with some regions shifting prices in accordance with peak seasons of travel and others offering discounts or exemptions to children, campers and business travellers.

If the benefits of taxes are not obvious, destinations risk losing the confidence of tourists

Compared with leisure tourism, business travel is easier for destinations to manage. “There’s a real difference in the data with regard to the cities that are very, very focused on leisure visitors versus those that either have a more balanced or higher business draw,” Turner said. This is because leisure tourism is growing at a faster rate and tourists tend to congregate in similar places at the same time of day. Business travellers, on the other hand, tend to travel further afield and visit the most popular spots at off-peak times.

Despite these variations, the goal of any tourist tax is the same: to raise funds to counter the negative impacts that come with a high volume of visitors. “Tourist taxes can be useful and help destinations treat the symptoms of overtourism, providing extra funds to better maintain their tourist sites and ensure the infrastructure and public transport can cope with the visitor numbers,” Justin Francis, CEO of Responsible Travel, told Business Destinations.

In many cases, tourist taxes are used to support and develop a region’s local tourism industry. At the start of 2019, for instance, Japan launched a ‘sayonara tax’ that requires tourists to pay JPY 1,000 ($9.22) when leaving the country. The revenue raised from the tax will go straight back into tourist infrastructure ahead of the Tokyo 2020 Olympic and Paralympic Games. Similarly, Dubai established a tax in 2014 to help fund its vast Expo 2020 projects and promote tourism in the region, while Barcelona used funds from its own tax to pedestrianise areas of the city and establish routes that ensure tourists move out of its most congested areas.

On the island of Bali, a planned tourist levy will help the government better manage waste and pollution. According to The Jakarta Post, the Bali Environment Agency found that nearly 3,500 tonnes of waste is produced on the island every day. Although it has already introduced a ban on single-use plastics, the Indonesian island’s plan to charge foreign tourists a $10 fee will give the government “better fiscal space to support the development of Bali”, its governor, Wayan Koster, said in a statement.

Bhutan, meanwhile, charges tourists a fixed rate of up to $250 per person per day (depending on the season) in order to preserve the country’s cultural heritage and natural resources. “[The Government of Bhutan] decided tourism would be useful, but only in a controlled way that does not change the culture and character of the country,” Higgins-Desbiolles said. The daily cost includes a number of amenities, such as accommodation, transportation, a guide, food and entry fees for attractions.

The smart money
Introducing a tax in any sector risks causing unintended effects. For travel and tourism, many in the industry worry that significantly increasing prices will deter visitors. With this in mind, the WTTC supports industry taxes only so long as they are designed intelligently. “[We] recognise that tourists are using the spaces that need to be funded by taxes – public squares, public transportation, street lighting, all of those things,” Turner said. “And so there is a reason to pay [their] fair share.” The question is whether the share that the sector currently pays really is fair.

1.4bn

International tourist arrivals in 2018

10%+

Tourism industry’s contribution to global GDP

19

Number of EU member states that enforce some form of tourist tax

40%

Average reduction in airfares since 2000

$9.22

Amount paid by every tourist departing Japan as part of the country’s sayonara tax

Research by the WTTC in 2012 found that US taxes on the travel and tourism sector, which represented 3.2 percent of all taxes collected in the country, actually outweighed the industry’s 2.7 percent contribution to GDP. “One of the things that we often find is that tourism is taxed almost arbitrarily, so that there are lots of add-on fees and charges in travel and tourism compared to many other sectors,” Turner said.

And if the benefits of these taxes are not obvious, destinations risk losing the confidence of tourists. As Fairhurst explained: “There is a risk that a tourism tax becomes a means of raising revenue at a time of tight public finances, particularly for local governments. Unless intelligent investment follows and services improve, visitors may conclude that it is only their money that is welcome and go elsewhere.”

In order to avoid such backlash, Fairhurst said tourist taxes must come with an adequate notice period, while authorities should be transparent about where revenue is spent and what benefits the tax will bring. Fairhurst pointed to the Balearic Islands as a prime example: having introduced a small charge in 2016, the islands have managed to raise €200m ($224.6m) to support 150 tourism projects, with the funds clearly ringfenced for environmental, sustainability and heritage initiatives.

In a white paper on creating smart tax policies, the WTTC said: “[The] ramifications of ill-thought-out tourist taxes can be far more impactful than at first sight.” UKHospitality, the trade group for the UK’s hospitality sector, has strongly opposed Edinburgh’s hotel tax for this very reason. The group has argued the extra £2 charge will result in up to £200m ($250.5m) of lost revenue every year and will make the city a less competitive destination.

This dilemma often pits industry groups against local governments. “Local governments bear the costs of… tourism, and also they are directly answerable to the resident population,” Higgins-Desbiolles said. “The issue is [that] power is not fully in their hands in a complex tourism system.”

A privilege or a right
Today, new elements are entering this power struggle. One is the rapid growth of hospitality platforms such as Airbnb, an online marketplace that was created to offer affordable alternatives to traditional hotels. Such peer-to-peer disruptors have grown faster than the legislative framework, creating issues for the industry. “This can be a problem both from a consumer point of view – visitors may not be adequately protected – and from a competitive perspective,” Fairhurst said. “Are they incurring proportionate compliance costs and contributing their fair share of tax?”

Tourist taxes can be key fiscal policy components of a more responsible tourism market, but they are unlikely to rebalance the industry’s supply and demand problems

With companies like Airbnb keeping their data under wraps, destinations are in the dark when it comes to knowing how to manage the industry. As such, Fairhurst believes an urgent debate must be held on the merits of legislation that would require platforms to share their raw data with public authorities. Another culprit is budget airlines, which, according to the World Economic Forum, have played a key role in reducing average airfares by 40 percent since 2000.

Francis believes these factors have amplified the issue of overtourism: “The industry has to look seriously at its relationships with platforms like Airbnb and the artificially cheap flights fuelled by tax breaks that drive so much of the mass tourism we see today. When travellers can fly from London to Barcelona for the price of a pizza and a couple of beers then we have a problem.”

Tourist taxes may therefore help to reduce the number of budget travellers heading to destinations that are already flooded with visitors. As Michael Skapinker, a Financial Times columnist, wrote of Edinburgh’s tax: “The highest-spending visitors will not be put off by a £2 fee, while backpackers may decide the holiday is now too expensive. Unfair on the backpackers, but better for Edinburgh if it gets a rising share of high spenders.”

This highlights another controversy surrounding tourist taxes. “Whenever there is talk about limiting tourist numbers or raising prices, there are accusations of elitism,” Francis said. However, both Francis and Higgins-Desbiolles pointed to an uncomfortable truth: tourism is a privilege, not a right. “We must not lose sight of the fact that our right to travel simply does not outweigh the rights of local people to enjoy their homes, or the need to preserve the environment,” Francis said.

Fairhurst also rejected the idea that tourist taxes are elitist, but only if they are helping to minimise the negative impacts of travel: “It is not elitist to price-in the costs of mitigating the negative impacts of any consumer choice (e.g. selling flights inclusive of a carbon offset contribution), but it will be inflationary and that will affect who can afford the service in question. The same can be said for [a tourist] tax or VAT – they are not elitist, but they are a factor in affordability and consumer choice.”

Higgins-Desbiolles compared ‘junk tourism’ to junk food: “We need to get more discerning and appreciative, and question the mindless consumption we are addicted to now.” Instead, she believes that ‘slow tourism’, in which one engages with the local community, “will be more justifiable in a resource-constrained world than this globetrotting, globe trashing we are currently encouraging”.

Changing attitudes
While taxing tourists could certainly help redirect funds towards local infrastructure, altering the mentality around responsible tourism will take a more holistic approach. In a recently published paper in the Journal of Sustainable Tourism, Higgins-Desbiolles and her colleagues went as far as to say that tourism must be redefined in order to “place the rights of local communities above the rights of travellers”.

Balearic islands’ tourist tax

2016

Year introduced

$224.6m

Amount raised

150

Projects supported

For example, the Encyclopaedia Britannica currently defines tourism as “the act and process of spending time away from home in pursuit of recreation, relaxation and pleasure, while making use of the commercial provision of services”. Higgins-Desbiolles, however, defines it as “the process of local communities inviting, receiving and hosting visitors in their local community, for limited time durations, with the intention of receiving benefits from such actions”.

By restructuring tourism in this way, Higgins-Desbiolles said tour operators would only be able to access a local community’s assets with its authorisation and stewardship. According to Turner, protests in Europe have shown residents in many places that they “have a voice”, and she believes this voice can be “very, very powerful in putting their needs above those of the travel and tourism sector”.

To make real improvements to the sector moving forward, Turner told Business Destinations that all of the industry’s stakeholders must come together: “There’s this need to do more to bring together the city planners, the city governors [and the] city policymakers with travel and tourism planners, tourism developers and those that are bringing in inbound tourists or domestic tourists into a place. [This ensures] that there is this entire and holistic view of demand and supply for a city as a whole, rather than for just residents or just tourists.”

Destination marketing groups are aware of this, Turner said, and many have embraced the move from marketing to management: “They need to be able to ensure that the destinations are balanced in terms of the needs of the residents and the needs of the local people.” The WTTC, she explained, is working to ensure this stays at the forefront of discussions when destinations consider how they will
manage tourism in the future.

Tourist taxes can be key fiscal policy components of a more responsible tourism market, but on their own, they are unlikely to rebalance the industry’s supply and demand problems. The Netherlands, for instance, has a tourist accommodation tax, yet it still struggles with overcrowding. One way Amsterdam is taking another step towards managing rising demand is by working to relieve pressure on the Van Gogh Museum, which has seen a huge growth in popularity in recent years and, according to the museum, now has more visitors per square metre of gallery space than the Louvre.

To tackle this, the museum has introduced a dynamically timed ticketing system, which releases more tickets when demand is lower and vice versa, improved signage and provided extra multimedia stops. As a result, it has lowered waiting times at the entrances and cloakroom, and reduced crowding in the galleries. Customer satisfaction is now at 90 percent, a representative from the gallery announced at a recent ETOA conference.

For the industry to overcome the challenges of overtourism, comprehensive change will be required. But bringing this vast sector together and changing well-established mindsets will be no easy task. After another summer of tourist infrastructure creaking under the weight of bulging visitor numbers, however, destinations may be more open to new solutions. For many, a well-thought-out tourist tax could be the first step forward.

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