What is a Tourist Tax, and why is everyone talking about it?

Reading Time: 4 minutes

After years of being touted by local authorities, political parties and expert groups, the idea of introducing a Transient Visitor Levy (TVL) within Scotland, has been gaining ground in recent weeks. This blog seeks to cover some of the basics and the story so far.

What is a tourist tax?

A TVL, also known as an Occupancy Tax or Tourist Tax, does just what it says on the tin – it’s a charge imposed on people visiting a country or city as short-term visitors, usually in the form of an additional fee added on to the cost of accommodation. Contrary to the ‘Tourist Tax’ moniker, a levy applied in this way would usually apply to all visitors using commercial accommodation, including those on business travel.

The report, Edinburgh Transient Visitor Levy, debated by the City of Edinburgh Council in May 2018, pointed out that, as of 2018, the UK is one of only nine countries from the EU-28 that does not charge a tourist tax. The models in the countries which apply a tax vary – the majority are levied at a city or municipality level, others are set at a national level. The report provided examples of three different types of visitor levies already in place in other countries. These are –

  • The progressive tourist tax model, which varies based on the size of establishment. This is used in cities like Paris, Rome and Florence.
  • The flat or fixed rate model, which sees a standard fee applied equally across all types and grades of accommodation. Dubrovnik, Lisbon and Prague use this model.
  • The tax liability model, as used in Brussels, which sees an additional tax levied on businesses depending on the size and type of accommodation, and additional costs then factored into the room rate.

Who is interested?

There have been calls for the power to be granted to local authorities to introduce a transient visitor levy over a number of years. COSLA has confirmed that all 32 local authorities have unanimously agreed that COSLA should pursue a TVL, and many local authorities have recently undertaken their own policy analysis of the costs and benefits of introducing a levy. This includes-

  • Edinburgh City Council, which argued that adding a £2 charge to hotel guests’ bills could raise £11m to fund local services in Edinburgh. Later this year a formal decision to back the introduction of an Edinburgh TVL will be brought before the Council.
  • Aberdeen City Council favour a £1-per-night rate, excluding camp sites and youth hostels.
  • Glasgow City Council looked at options for local taxation in the round, and of the options presented, favoured the introduction of a Tourist Tax.

On 13 September 2018 the Culture, Tourism, Europe and External Affairs Committee were told that Highland Council were also in favour of introducing a Tourist Tax, when it gave evidence on the subject alongside Aberdeen City Council, City of Edinburgh Council and COSLA. Comhairle Nan Eilean Siar also expressed an interest in councils being given the discretionary powers to impose a levy. Since then, Moray Council and Argyll and Bute Council have also expressed support.

What have people said?

Views on the introduction of a Tourist Tax in Scotland are mixed. The Commission on Local Tax reform stated, when it reported in December 2015 that a Tourist Tax would be one avenue to broaden the local tax base. COSLA have argued for primary legislation to give powers to local authorities to implement a local model which suits their area. In August, news outlets reported that both AirBnB and the Chief Executive of Virgin Hotels had voiced their support for a TVL in Edinburgh. Airbnb currently collects and remits taxes on behalf of hosts in 10 countries (in addition to many states in the US) and reportedly ―has agreements with more than 400 governments and local authorities around the world.

On the flip side, the Scottish Tourism Alliance has argued against the introduction of a tourist tax, raising a number of concerns ranging from the effect of the UK’s relatively high VAT rate to the high costs that tourism businesses in Scotland already face. A Tourist Tax has also been opposed by other business groups such as the Federation of Small Businesses (FSB), who call it “potentially damaging”. UKHospitality has stated that that a tourist tax in Edinburgh, or any part of the UK, could be disastrous for hotels and the hospitality sector, which it described as the UK’s third largest private sector employer.

How could it happen?

Local authorities cannot start setting and collecting a Tourist Tax themselves. Putting in place a new tax would require Scottish Parliament primary legislation. The Act would determine the tax base – as discussed, in this case, the tax base would most probably be the number of nights spent in hotels or other forms of accommodation.

If this were intended as a local tax, the primary legislation putting in place a tourist tax would likely also contain the provision for local authorities to set the rates.

What has Scottish Government said?

Up until as recently as July, the Scottish Government stated, in response to Edinburgh’s proposals, that there was no “no agreement with the Scottish Government” to make them happen. There was no mention of a TVL in the 2018-19 Programme for Government, leading to news speculation that a Tourist Tax was not on the Scottish Government’s agenda.

On 1 October 2018, at the Scottish Tourism Alliance’s annual conference, the First Minister reiterated that there are currently “no plans to introduce a tourism tax”. However, she said the government would accept the STA’s call for an “objective process of consultation”.

She said that this work, led by the Scottish Government, would “examine in detail the arguments for and against a tourism tax”, saying ministers were “determined that all voices will be heard”.

At First Minister’s Question Time on 4 October 2018, the First Minister, when questioned about the Scottish Government’s position on the Tourist Tax by Scottish Labour leader Richard Leonard, said:

“It is not currently Scottish Government policy to have a tourist tax, but of course we will continue to have that discussion and we will continue to consider these matters as we approach our budget this year.”

Ailsa Burn-Murdoch, Senior Researcher, Financial Scrutiny Unit