27 March 2019

Impact of tourism tax

Edinburgh is about to become the first city in the UK to introduce a tourism tax, but there are still considerations to be made as the council determines exactly what implementation of the tax will look like.

The tax, which is estimated to raise about £11.6m to £14.6m per annum for the capital, will be used to manage some of the impacts of the booming tourism sector in Edinburgh.

The introduction of the tax remains a controversial topic. An Edinburgh Chamber of Commerce survey showed that 70% of businesses would support the introduction of a tax. However, on the other side, the Scottish Tourism Alliance said further conversation and debate on the issue was needed before any decision was made.

While tourism taxes are common across the EU, the UK hospitality industry remains strongly opposed to introducing such a tax on the basis that it’s not competitive, and that the UK already levies one of the highest rates of VAT on tourism services in the EU.

It’s not just the City of Edinburgh Council that has been involved in the debate. The Highland Council has also announced that a tourism tax is up for consultation after seeing an influx in tourism to the region, with almost 6.5 million visitors to the area last year. The tourism tax proposed by the Highland Council could raise between £5m to £10m per year.

These real examples are forcing local councils across the UK to consider the impact of what a tourism tax could mean for their local area as the sector continues to grow, and what key factors they would need to contemplate if it was to be introduced.

As a starting point, local councils need to provide clarity on how the funds raised from the tax will be used as well as consider how the funding will complement the support that is already provided through central Government.

For example, the Rural Tourism Infrastructure Fund by the Scottish Government will see £6m invested over the next two years to support tourist facilities and communities in rural Scotland. The Fund was developed in part to support increased tourism in the Highlands as a result of the North Coast 500 route. The Highland Council should therefore consider if the additional tourist tax is a necessity, or if it will deter tourists to other parts of Scotland that are not taxed.

Tourism taxes have become common in many parts of the EU and can be seen as a way for cities to raise funds that support their growing tourism industry. But it will be important for councils across the UK to ensure the taxes they propose maintain their competitiveness in the market, and they will need to provide clarity to stakeholders on how the funds will be used in order to gather support and ensure an open debate ahead of any sort of successful implementation.

This feature first appeared in Local Government News magazine.

Rory Alexander is planning and local government partner at Morton Fraser and a legal associate of the RTPI.

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