When Tourism Taxes Become Excessive

News Americas, LONDON, England, Fri. July 13, 2018: As the reach and range of taxation has expanded, Caribbean hoteliers in particular have become uneasy about the impact that increasing levels of taxation may have on their competitiveness and that of the country they are located in.

Most accept that government’s ability to raise revenue is important, not just to ensure that tourism infrastructure, destination marketing and incentives are in place, but to provide the education, social services and all else that a state is expected to provide. The consequence is that although hoteliers regularly complain, and investors seek the longest possible tax holidays, for the most part the industry begrudgingly accepts that they and their guests must contribute to the national economy.

However, there are signs of a debate emerging in some parts of the region and externally as to whether a point is being reached where the widening mix of visible and invisible taxes a visitor must pay, may be starting to make some Caribbean destinations and stay-over tourism of questionable value for money.

Up to now, governments in the region have taken the view that there is little down-side to taxing foreigners seeking a dream vacation. The view is that the high end of the market is not affected by new taxes and levies, while vacations at mid-level price points are not be much influenced because the Caribbean remains a desirable destination.

However, in recent weeks the issue has become more widely discussed because of a range of tourism related taxes introduced by Barbados new government to help address the parlous economic situation it has inherited.

The measures introduced, in what is already a high cost destination, have created uncertainty among hoteliers, tour operators and the international media as to whether they will deter or displace visitors to elsewhere in the region.

From October 1st, there will be a per person US$70 Airline Travel and Tourism Development fee for departures to extra-regional destinations and a US$35 fee for travel within the Caribbean.

In addition, there is a new hotel room tax of US$2.50 per night for B Class properties and apartments, a US$5.50 per night charge for A Class properties and US$10 nightly tax for stays at luxury resorts. A ten per cent tax has been introduced on shared accommodation such as Airbnb, and other taxes, including a product development levy on direct tourism services, are likely to hit tourists indirectly.

Because these are in addition to existing airport and other charges, this means the cumulative impact on a family of four, when sales and other taxes and the charges levied by airlines and source destinations are included, threatens to add significantly to the basic cost of a Barbados vacation.

Already, Ernst & Young, the management accountants have cautioned that the new tourism taxes could reduce Barbados’ competitiveness as a tourist destination, dampening travel as price sensitive tourists select cheaper destinations.

Travel Weekly, the trade publication, has described new room tax as a “a sure-fire way to annoy customers.” Its editor, Lucy Huxley, commenting recently that ‘rushing through taxes that hit customers who have the choice to vote with their feet in the future could well end up not delivering the results it is hoping for.’

Others have pointed out that the burden falls only on land-based tourism, so far leaving the notoriously awkward cruise ship companies untouched and their passengers paying a head tax of just US$6.

What Barbados’ economic misfortune and its new visitor taxes suggest is the need for a broader debate about the impact of tourism taxes on pricing and the point at which revenue raising measures become counterproductive.

The danger is that in Barbados and elsewhere in the region, a moment may come when rising levels of tourism taxes mean that middle-market visitors stay for shorter periods, turn to cruising, seek alternative warm water destinations offering better service, cuisine, comfort, and value for money, or worse: they simply say that the Caribbean has become too expensive.

David Jessop is a consultant to the Caribbean Council and can be contacted at david.jessop@caribbean-council.org.