Tourism tax: messages from the national discussion

High-level summary of the messages that emerged from our national discussion on tourist taxes, and summaries from roundtable discussions.

2. High-Level Messages from the National Discussion

19. The roundtable discussions were loosely structured around the broad themes and questions raised in the discussion document, though the issues raised and considered varied across the sessions. The broad themes suggested in the discussion document were:

  • What Would the Reasons Be for Introducing a Transient Visitor Tax?
  • What Would a Well-Designed and Operated Transient Visitor Tax Look Like?
  • What Positive and Negative Impacts Could a Transient Visitor Tax Have?
  • How Could a Transient Visitor Tax Be Used, and How Can Revenues Be Distributed Fairly?

20. This section sets out high-level messages arising from the national discussion relating to these broad themes. These are drawn from the roundtable discussion sessions, and a high-level overview of the written contributions to the national discussion. This document does not repeat the evidence presented in the discussion document; these documents should therefore be read in conjunction with one another, the readouts from the roundtable events, and the written contributions.

What Would the Reasons Be for Introducing a Transient Visitor Tax?

21. In general, there was a shared appreciation among participants in the national discussion of the importance of tourism as a key sector of the economy, both for Scotland as a whole and across the country. There was also a general recognition of the importance of tourism for economic growth and opportunity, particularly in areas outside of Scotland’s main cities, and of the importance of supporting and investing in tourism infrastructure and facilities to ensure that Scotland remains an attractive tourism destination.

22. Within this context, several participants in the national discussion highlighted importance of meeting and maintaining the facilities standards that are expected by visitors. These included physical infrastructure such as roads, public toilets, transport links and internet availability, particularly in rural areas experiencing growth in tourist numbers.

23. During the national discussion, the priorities for tourism investment raised by participants varied across different areas of Scotland depending on their local economic context, the importance of tourism locally and the nature of the tourism offer in that area, and other issues such as geography and rurality. In some, particularly rural areas, the emphasis was on improving attractiveness and visibility of destinations through supporting marketing activities, and developing and supporting attractions, with a view to encouraging a sustainable tourism growth.

24. In other areas, priorities included investing in facilities to respond positively to increased visitor numbers, to maintain and improve standards in line with visitor expectations. Some contributors highlighted the importance of providing additional services at peak times, such as street cleaning, and maintenance of facilities in popular areas. The challenge of providing and maintaining services and facilities in larger rural areas like the Highlands was highlighted, as was the difficulty in charging for facilities like viewing points. In the case of Edinburgh, some stakeholders highlighted the importance of maintaining and improving the competitiveness of the city’s broader offer, particularly compared to other cities across the UK and Europe.

25. Several Local Authority participants articulated financial challenges around pressures of providing support for tourism investment, or providing core infrastructure and facilities. This was particularly in relation to challenges relating to funding discretionary activities, such as tourism support, when combined with funding statutory services within their areas, alongside limited discretionary options to raise revenue in response to local needs. Within this context, CoSLA and Local Authorities like Edinburgh and Aberdeen City had expressed support for the principle of devolution of powers to levy a tourist tax to Local Authorities, to allow for revenues to be raised to support individual areas’ tourism priorities, should local circumstances be supportive.

26. Local Authorities such as Edinburgh and Aberdeen viewed the ability to levy a tourist tax as a potentially helpful tool for generating sustainable funding streams to provide infrastructure or services that could support tourism development in their areas, such as destination marketing and cultural events or attractions. They also highlighted potential to support provision of public goods in their areas used by both tourists and residents, such as parks, walkways and public spaces, where the costs of provision were often borne by local taxpayers. Similar arguments were also advanced around supporting services like street cleaning in peak tourist seasons, where costs were currently borne by local taxpayers. City of Edinburgh Council advised that their survey evidence had indicated that local residents were in favour of a tourist tax, and suggested that within their area, a tourist tax could be a means of maintaining local support for a successful tourist sector.

27. Individual Local Authorities expressed differing degrees of enthusiasm for a tourist tax during the national discussion. Several Local Authorities had yet to take a view, while Local Authorities such as Scottish Borders expressed concerns that a tax could hinder their ability to develop a sustainable tourism sector in their areas.

28. Some contributors to the national discussion highlighted the importance, for tax policy purposes, of a clear understanding and articulation of the aims, objectives and rationale for a new tax. Some attendees also suggested considering this issue in the context of wider national taxation policy.

29. During the national discussion, those representing the tourism sector, in particular accommodation providers’ representatives, and individual accommodation providers, tended to be strongly opposed to tourist taxes. There was also opposition to the idea of tourist taxes from organisations representing the supply chain and wider tourism sector, while most business representative organisations also expressed opposition to tourist taxes.

30. Concerns from tourism industry representatives were based around the impact of additional taxation on their competitive position, in light of increases in labour costs such as the National Living Wage; increasing input costs, such as food, drink and energy; and existing taxes such as Non-Domestic Rates and VAT. Tourism industry contributions emphasised the scale of the sector’s existing tax contributions, and also contributions made in different areas of Scotland to voluntary initiatives, and to funding vehicles such as Destination Management Organisations (DMO).

31. The impact of VAT on the competitive position of accommodation providers compared to competitors in other countries was raised on several occasions by a range of industry stakeholders during the national discussion. As the UK applies its standard rate of VAT (20 per cent) to accommodation, the rate of VAT applied to accommodation is among the highest in the EU, as most EU member states apply rates of between 5 per cent and 10 per cent, with only Denmark applying a higher rate to accommodation (25 per cent). Accommodation providers also highlighted that EU Member states that operated tourist taxes applied lower rates of VAT on accommodation to the UK.

32. Industry representatives were also concerned about the introduction of a new tax in the context of maintaining the sector’s competitiveness, in light of the UK leaving the European Union. Industry representatives highlighted the sector’s reliance on EU nationals within its workforce, the resulting exposure to risks around recruitment and retention of staff, and the potential for additional labour costs should it become more difficult to recruit and retain labour. Industry representatives highlighted that the majority of overnight visitors to Scotland were from domestic (Scottish and RUK) markets, and the sector’s resulting exposure to possible reductions in domestic demand following Brexit. Industry representatives also raised concerns about the potential for negative messages to visitors at a national level from taxes introduced at Local Authority level, with risks that new taxes could inadvertently signal that tourists are unwelcome in Scotland.

33. During the national discussion, accommodation provider representatives expressed concerns regarding the alignment between the rationale for a tourist tax, the potential sources of pressure from visitors, and the segment of the visitor economy who would be liable for a new tax. In particular, it was highlighted that numbers of day visitors significantly exceeded overnight visitors, both at a Scotland level, and in individual areas such as Edinburgh. This had the implication that a tax on overnight accommodation may not directly address sources of pressure, or those making use of public goods.

What Would a Well-Designed and Operated Transient Visitor Tax Look Like?

34. During the discussions, a range of points around how a tourist tax could be designed and operated were raised. An important theme related to the extent to which these were national or local issues.

35. A number of industry representatives and contributions emphasised that the issue required a significant level of national consistency in terms of design and operation, in order to reduce complexity and to minimise costs of compliance. They also argued that consistency was important for tourists themselves, as different arrangements across Scotland could be viewed negatively by those moving between different areas of Scotland. Some contributors to the national discussion also indicated there was a risk that devolution to Local Authorities could create complexities and inefficiencies in the tax system.

36. Areas where industry representatives highlighted the importance of national consistency included types of accommodation covered by a tax; who would be liable to pay a tax; rates and bands employed, and who would set them; whether rates should vary across the year or by season; and exemptions made for different types of accommodation or types of visitor.

37. Some contributors to the national discussion argued that greater local variation in these areas could bring additional complexity to the administration of the tax. A number of participants in the national discussion also argued that a national approach could assist with simplicity in design and operation, and be more easily understood by visitors.

38. Some individual Local Authorities were also sympathetic to a national framework; however, others were more sympathetic to approaches that could vary according to local circumstances. Illustrations of these included whether campsites, mobile homes and cruise ships should be included within types of accommodation that were liable for tax.

39. Some participants highlighted issues to be considered from other countries’ experiences in this regard. These included national decision-making on whether to devolve the power to tax, and local discretion over the decision of whether to introduce a tax. This also included discretion to not introduce a tax, should it not be viewed as appropriate for local circumstances. Participants also emphasised the importance of consultation, particularly with the tourism industry, prior to a decision to introduce a tax in individual areas.

40. As indicated above, different Local Authorities expressed varying degrees of enthusiasm for a tourist tax. Among those Local Authorities in favour of a tax, proposed approaches differed. For instance, Edinburgh Council had considered a tax on a room basis, whereas Aberdeen City Council had considered tax on a per person, per night basis. Different approaches to tourist taxes had potentially different equity impacts on visitors and accommodation providers.

41. Some Local Authorities offered initial views on the arrangements required for implementation, administration, collection and enforcement. They emphasised the need for efficient collection approaches, but suggested that the tax should be collected by accommodation providers, who would be required to: register with the relevant Local Authority; maintain records, including of rooms occupied; and collect and remit revenues to the relevant Local Authority on a regular basis, within agreed timescales. Local Authorities would be required to validate returns, audit accommodation providers’ returns, and undertake revenue forecasting. Participants in the national discussion tended to recognise that more consideration of specific design and operational matters would be needed and experience of tourist taxation in other places should be drawn upon.

42. A number of issues around operation were highlighted by industry representatives during the national discussion. In particular, industry representatives highlighted that it was likely that introduction and operation of a tourist tax could create additional costs for both Local Authorities and accommodation providers, in both the implementation and operation phases of a tax. Accommodation providers advised that they would likely need to change or adapt existing IT and booking systems, and train staff to comply with a new tax. They also highlighted that there could potentially be ongoing costs associated with administering and remitting taxes.

43. Accommodation providers also highlighted that costs and complexities could be greater for accommodation providers who operated across several Local Authorities, should different systems be in operation in different Local Authority areas.

44. During the national discussion, participants suggested there was potential for additional costs to Local Authorities from creation of a new tax, owing to requirements to collect, administer, monitor and enforce a new tax. There was discussion over whether Local Authorities’ existing collection systems would be suitable in the context of a tourist tax. However, some operators such as Airbnb have existing systems that collect versions of Tourism Tax and remit revenues to municipal authorities in other countries.

45. Some participants highlighted important messages on good practice from other countries’ experiences. These included:

  • The need of substantial lead-in times for implementation of a tax, and also in terms of notice for the private sector. This included notice for international and long-haul operators, who operate on long planning cycles; and
  • The importance of transparency. This was both in terms of taxes being visible to tourists, to help maintain a destination’s reputation, and in terms of demonstrating what taxes were being used to fund to businesses and tourists.

46. The national discussion highlighted several operational issues where greater clarity was required. These included whether tourist taxes would be subject to VAT; whether a registration scheme for accommodation providers would be needed, as the current regime in operation in Scotland is voluntary; whether a tourist tax would be reflected in the upfront price presented to consumers at point of purchase; and whether a tourist tax would be subject to Online Travel Agency (OTA) commission.

47. There were questions of how tourist taxes would align with existing support mechanisms such as Business Improvement Districts (BIDS). There were also questions of how tourist taxes would interact with initiatives involving several Local Authorities in collaboration, such as City Deals, or arrangements for bodies like National Parks, which exist across several Local Authorities’ boundaries.

What Positive and Negative Impacts Could a Transient Visitor Tax Have?

48. During the national discussions, a range of views were put forward regarding the potential impacts of tourist taxes. However, the discussions also highlighted a number of areas of uncertainty, or where there was limited evidence available.

49. Several contributors to the national discussion offered suggestions of potential positive impacts. These included the generation of sustainable additional revenue streams for maintaining and increasing investment in areas’ tourism offers, including in amenities such as public spaces and toilets, services such as additional street cleaning, and marketing support for destinations.

50. Edinburgh Council also suggested that a tourist tax could offer an important means of securing residents’ buy-in to support ongoing tourism development in areas experiencing relatively high volumes of visitors.

51. However, a number of contributors from the tourism sector strongly believed that tourist taxes could have negative impacts on individual accommodation and supply chain businesses, on the wider tourism sector, and potentially on the wider Scottish economy. There were concerns that tourist taxes could add to costs of doing business and impact on business profitability, particularly in more rural areas, and impact on the competitiveness of the sector compared to the rest of the UK, and internationally.

52. There were concerns from tourism industry representatives that introducing a tax could contribute to negative messaging around tourists being unwelcome in Scotland overall, regardless of whether the tax was introduced across the whole of Scotland, or in specific areas. They highlighted this as a national level risk to the sector’s competitiveness, particularly in the context of the UK leaving the EU. However, other contributors highlighted that a number of EU Member States also operated tourist taxes. Evidence from international contributors also advised of reputational challenges for both the tourism sector and Scotland were a tax to be introduced without sufficient advance notice to private sector providers.

53. There was limited evidence presented around the extent of any tax increase that would be passed on by accommodation providers to tourists. However, industry representatives suggested it was likely that competitive pressures would require tax increases to be passed through into price increases. If prices were to increase, there could be potential for behavioural change on the part of tourists.

54. Some participants in the national discussion argued that tourist taxes would likely represent a modest charge in prices, and that behavioural responses to the introduction of a tourist tax would be limited. There was limited evidence available on potential behavioural responses in different areas of Scotland, beyond that available from surveys of visitors to Edinburgh[2].

55. The survey evidence available for Edinburgh indicated that, for taxes in the region of £2 per room per night, around 70 per cent to 78 per cent of visitors would not have amended their accommodation or spending decisions. However, their evidence suggested that there could be a degree of behaviour change at the margins, including visitors changing the type of accommodation they stayed in, their wider spending, the number of nights they would stay, and a marginal impact on numbers choosing Edinburgh as a location to visit.

56. Some attendees highlighted there could be unintended cross-border impacts for different Local Authorities if tourist taxes were introduced in a limited number of areas. These included impacts that could be beneficial to other Local Authority areas, such as visitors choosing to stay in accommodation in other Local Authority areas. However, they also included potential negative impacts, such as tourists foregoing trips to other areas outwith where they were staying (e.g. to the Scottish Borders, were they to stay in Edinburgh).

57. There was limited evidence available around potential economic impacts. UK Hospitality estimated gross reductions of visitor spend of around £94 million in Edinburgh from a £1 - £2 per room per night tax. When extrapolated out to Scotland as a whole, UK Hospitality estimated a gross decrease in visitor spend of around £205 million. However, this did not account for potential impacts from uses of revenues raised. There was concern from industry representatives that there was relatively limited empirical evidence on potential impacts, and this was also acknowledged by Local Authorities. Both industry representatives and Local Authorities stressed the importance of addressing these gaps.

58. The discussion highlighted several areas where the evidence base could be developed. These included:

  • The tax base and the scale of potential revenue that could be generated;
  • Empirical data on costs to business and local authorities to administer and collect the tax;
  • The wider economic impact of implementing tourist taxes; and,
  • Potential behavioural responses of tourists and businesses, and economic impacts of a change in visitor spend.

How could a transient visitor tax be used, and how can revenues be distributed fairly?

59. During the national discussion, there was some consideration of potential uses of revenues. To some extent, these considerations were reflected in contributions around the reasons for a tourist tax, and potential positive and negative impacts. However, some additional dimensions emerged from contributions, which are set out below.

60. The national discussion surfaced some wider questions related to local government finance, organisation and autonomy. These included arguments from some Local Authority representatives and tourism industry representatives that revenues from tourist taxes should be additional to Local Authority expenditure on tourism, rather than a replacement for them. Some Local Authority representatives also raised questions of how tourist taxes would interact with existing arrangements around pooling and sharing of revenues.

61. When considering how revenues from a tax could be used, tourism industry representatives and contributors tended to emphasise the desirability of hypothecation of revenues, with revenues being raised from tourism businesses being clearly allocated to tourism uses. Some contributors suggested the importance of revenues raised locally being used in the same locality. Proposed uses included additional support to events and festivals, visitor information, marketing/promotion, cultural experiences, walking tracks, and signage.

62. A related argument advanced by some contributors suggested viewing tourists as stakeholders in the use of tourist tax revenues, and articulating taxes as a means of contributing to the upkeep and quality of destinations.

63. However, some contributors highlighted potential complexities associated with hypothecation of revenues, and potential exposure to revenue risks that could arise from following such an approach. There could also be a need to undertake revenue forecasting.

64. The broad intention amongst Local Authorities who expressed an interest in adopting a tourist tax was that revenues would be targeted at providing sustainable funding streams to support tourism development and investment in areas’ tourism offers. However, some Local Authorities also emphasised the need for flexibility over how revenues are spent, to ensure that expenditure was aligned with local needs and responding to local priorities. Some were keen to see revenues used to support sustainable and inclusive tourism including diversification to increase areas’ appeal. Others suggestions included using funds for general and tourist specific infrastructure and public service improvements in areas used by tourists.

65. The importance of a partnership approach between Local Authorities and the tourism industry, in making decisions about how and where revenue should be spent was highlighted. There were several approaches put forward, including direct use by Local Authorities, requirements for input or approval into decision-making by tourism businesses or representatives, allocation of funds to arms-length bodies, or management of funds by DMOs. Some highlighted the need for meaningful stakeholder fora to ensure that spending decisions were made fairly and transparently.

66. Industry participants also highlighted the importance of transparency in how revenues were used. The need for trust and transparency between all parties was emphasised not just in relation to this specific issue but also in relation to long term strategic tourism planning and development in general.



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