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.

Annex C

National Discussion on Tourist Tax
Third Round Table Discussion, Edinburgh
Tuesday 4th December 2018


Fiona Hyslop MSP, Cabinet Secretary for Culture, Tourism and External Affairs

Bettina Sizeland, Deputy Director, Tourism & Major Events, Scottish Government

Kevin Brady, Senior Economist, Directorate for the Chief Economist, Scottish Government

Duncan Mackay, Tourism Team, Scottish Government

Kay Barclay, Principal Research Officer, Scottish Government

Mairi Longmuir, Economic Adviser, Directorate for the Chief Economist, Scottish Government

Jonathan Ferrier, Tourism Team, Scottish Government

Trudy Morris, Caithness Chamber of Commerce

Laurence Rockey, Head of Strategy and Insight, City of Edinburgh Council

Paula McLeay, Policy and Insight Senior Manager, City of Edinburgh

Lauren Bruce, Chief Officer for Local Government Finance, CoSLA

Iain Gibson, Edinburgh Chamber of Commerce

Martha Walsh, Edinburgh Chamber of Commerce

Tristan Nesbitt, Edinburgh Hoteliers Association

Robbie Worsnop, Chair, Edinburgh Tourism Action Group ETAG

Marshall Dallas, EICC

Julia Amour, Director, Festivals Edinburgh

Marc Crothall, Chief Executive, Scottish Tourism Alliance

Peter Lederer, Glasgow Tourism Leadership Group

Margo Paterson, CEO, Hostelling Scotland

Charlotte Barbour, Director of Taxation, Institute of Chartered Accountants in Scotland

John Donnelly, CEO, Marketing Edinburgh

Alasdair Morrison, Head of Regeneration, Renfrewshire Council ,

Beatrice Morrice, Head of Engagement (Scotland), Scotch Whisky Association

Paul Togneri, Senior Advisor, Scottish Beer & Pubs Association

Robert Kidd, Chair, Scottish Destination Management Association

Colin Wilkinson, MD, Scottish Licensed Trade Association

Colin Smith, CEO, Scottish Wholesale Association

Willie MacLeod, Executive Director (Scotland), UK Hospitality

Malcolm Roughead, Chief Executive, VisitScotland

Introductory Remarks

1. The Cabinet Secretary opened the discussion event, which was the third in a series of events to support the national discussion. The Cabinet Secretary highlighted that tourist taxes are a complex topic, and tourism’s role as a national growth sector, and the requirement for legislation should any powers be devolved, necessitated national consideration.

2. Through the national discussion, the Scottish Government was not seeking to consult on a discrete policy proposal. Instead, the process was an opportunity for stakeholders to come together to establish a shared understanding of positions and available evidence on this topic.

3. As well as the discussion participants, other stakeholders in the discussion would be able to view the discussion paper online and email evidence into a dedicated email address. The Scottish Government would look to publish a high level readout of the national discussion events, along with evidence provided by stakeholders.

4. The Cabinet Secretary invited Kevin Brady, from SG OCEA to speak briefly to the Scottish Government’s Discussion Paper, followed by Lauren Bruce, who gave an overview of the position set out in CoSLA’s policy paper.

Scottish Government Tourism Tax Discussion Paper

5. Kevin Brady provided an overview of the discussion paper. It was emphasised that the purpose of the discussion paper was to provide evidence to inform the national discussion; it was not intended to present a Scottish Government policy position, or advance a case ‘for’ or ‘against’ a tourist tax.

6. The discussion paper set out the Scottish Government’s general economic policy context, and the principles influencing Scottish Government thinking on tax (the ‘Adam Smith principles’); evidence on tourism in Scotland; discussion around taxes on tourism businesses, and occupancy taxes (aka tourist taxes, or transient visitor taxes) in other countries; and issues raised from international evidence and experience that could be relevant to the discussion. It also highlighted key messages from recent EU work on tourism taxation, which emphasised the importance of balancing revenue considerations with maintaining industry competitiveness.

7. The discussion paper also set out four broad themes, with a number of supporting questions, to help guide the discussion. These 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?

The discussion event would be broadly structured around these themes, with the supporting questions within them acting as prompts for discussion.

CoSLA Position on a Transient Visitor Tax

8. Lauren Bruce gave an overview of CoSLA’s position with regard to tourism taxes.

9. CoSLA’s position on a Transient Visitor Tax (TVT) was set out in their discussion paper, which was published in June 2018 and had support from all 32 local authorities, based on support for discretionary tax powers in general.

10. The position articulated in CoSLA’s paper is that local authorities should be empowered with the discretion to introduce a TVT if the local circumstances were right and in full consultation with stakeholders within their local area. CoSLA shared recognition of importance of tourism; however, issue was that costs of supporting tourist infrastructure fall on taxpayers. Use of TVT would be in response to local circumstances and needs, and enabling Local Authorities to access levers to support and address pressures that differ across Scotland.

11. There was no shared local authority view around hypothecation of revenues. However, local authorities would see TVT as additional revenue that would be used to address the pressures of tourism and not to subsidise core budgets.

What would the reasons be for introducing a transient visitor tax?

12. In general discussion, the following points were noted:

  • Attendees welcomed the national discussion, and the supporting evidence presented by Scottish Government.
  • Some attendees highlighted that the challenge facing Edinburgh in particular was competition from other cities in the UK and abroad, and emphasised the importance of continued and sustained investment in Edinburgh’s offer to maintain competitiveness.
  • Industry representatives highlighted the importance of Scotland and Edinburgh remaining competitive and attractive destinations, and being seen as welcoming and open. They emphasised Scotland’s reliance on the domestic (Scottish and UK) visitor market, particularly outside of Edinburgh, along with the perception that Scotland was a relatively expensive destination.
  • Industry representatives questioned whether the relative costs and benefits of tourism were fully appreciated and understood, and argued that this was an important evidence gap in the context of the debate.
  • Local authority representatives recognised the importance of tourism for sustainable inclusive growth, particularly within Edinburgh, but highlighted challenges of sustainably maintaining discretionary expenditure to support and invest in tourism and public realm, particularly in current fiscal environment. Examples of discretionary spend included marketing, grants to cultural organisations, maintenance of parks and public spaces, and street cleaning, particularly during the Edinburgh Festivals.
  • Industry representatives acknowledged local authority funding pressures, but argued that the industry was already contributing substantially through the scale of its tax contribution (estimated at around £720 million across Scotland), existing voluntary contributions, and existing capital investment by tourism and accommodation businesses.
  • Industry representatives articulated concerns regarding whether a rationale for a tourist tax had been fully considered and expressed, and regarding costs of collection. Industry representatives also suggested that it was likely that additional taxes would be passed on to visitors, and It highlighted that other countries that operated tourist taxes tended to have lower rates of VAT on accommodation than the UK.
  • Industry representatives also argued it was important that other approaches to providing funding for supporting sustainable investment in tourism infrastructure be considered. These included options related to day visitors, if this group were felt to be important in generating pressures, and options such as reform of the Small Business Bonus Scheme.
  • Some attendees suggested that tourist taxes sat within broader context of destination management, involving businesses, visitors and residents. In this context, it was important that residents’ views and concerns were recognised and considered within the debate.
  • Attendees also reported key messages from surveys of residents and visitors within Edinburgh undertaken by Marketing Edinburgh in recent months. These included broad resident support for the idea of taxes levied on overnight visitors, and findings from surveys of peak and off-peak visitors that the majority of visitors’ decisions to visit Edinburgh, or their spending profile, would not be affected by a potential tourist levy of the magnitude proposed by the City of Edinburgh Council.
  • Attendees noted the role of national-level investment (e.g. in attractions like the National Museum and historic environment) in supporting Edinburgh’s attractiveness as a destination.
  • Industry representatives highlighted existing and potential future pressures on occupancy rates, revenue and profitability within Edinburgh, including from additional hotel supply, increased supply through collaborative economy platforms, and pressures from Brexit. These were occurring despite recent strong visitor numbers and expenditure, and were particularly felt by budget providers (such as hostelling businesses within the city).
  • Some attendees expressed concerns about the possibility of funds from potential tourist taxes being used for non-tourism purposes, and for the potential for levies to be misaligned against factors creating pressures (e.g. increased use of motorhomes in rural areas).
  • Industry representatives emphasised the importance of discussions around tourist taxes being viewed within a national context. This stemmed from the impact that policy within Edinburgh could have on other areas within Scotland; existing perceptions of Scotland as a high-cost destination; questions about the use of funds from potential tourist taxes, and whether these would be linked with tourism priorities; and the potential for confusion among visitors to Scotland if multiple tax regimes were established across Scotland. Existing pressures on industry margins and rising costs were also highlighted.
  • Local Authority representatives highlighted that broader pressures on local government finance, and the requirements of supporting statutory services, were an important factor underpinning local authorities’ views on transient visitor taxes, though in areas such as Edinburgh, drivers also included finding additional means to support delivery of tourism ambitions for the city.
  • A central question for future discussions would revolve around whether funds were intended for ‘defensive’ purposes (e.g. mitigating funding pressures) or more proactive purposes, around investment to support ambitions and growth in tourism. Some attendees suggested that decisions on tourist taxes should be strategic decisions, rather than in response to pressures from visitor numbers.

What would a well-designed and operated transient visitor tax look like?

13. In general discussion, the following points were noted:

  • Edinburgh City Council representatives set out the broad principles guiding their thinking, including fairness; transparency in operation and use of revenues; and simplicity of administration. Some attendees suggested they would wish to see revenues that were raised being reinvested in Edinburgh’s tourism and cultural offer.
  • Industry representatives highlighted several issues related to administration. The costs of administration were raised, particularly uncertainties as to whether tourist tax rates would be subject to VAT. It was also highlighted that existing legislation on accommodation pricing would require providers to change their upfront prices to reflect the new price following addition of tourist taxes. Potential interactions with commissions paid to other businesses were raised.
  • Some attendees highlighted several broad issues around transient visitor taxes, based on experience of other devolved taxes, such as Land & Buildings Transaction Tax. These included: that greater efficiency would point to a national tax framework, rather than each local authority operating its own framework; questions around how hypothecation of revenues, while important for transparency, would align with efficiency and the broader Adam Smith principles; the importance in general of broadening tax bases; and the interaction of transient visitor taxes with related areas of tax policy, such as Air Departure Tax.
  • Some attendees also queried the broad intention in tax policy terms behind transient visitor taxes, with the suggestion that, if taxes were focused on addressing pressures, they would not necessarily raise significant levels of revenue.
  • Industry representatives highlighted potential for costs of registration and regulation. In particular, the absence of a compulsory registration of accommodation providers was highlighted as an important gap in the existing data on the sector.
  • Local Authority representatives highlighted that Local Authorities currently collected a range of taxes and charges, experience of which could inform collection of new taxes.

What positive and negative impacts could a transient visitor tax have?

14. In general discussion, the following points were noted:

  • Local Authority representatives highlighted existing concerns around tourism volumes articulated by residents in areas like Edinburgh, with one potential benefit of a tourist tax being to generate broader buy-in among residents for tourism growth.
  • Local Authority representatives also suggested the potential for tourism taxes to form a predictable revenue stream that local authorities could borrow against for strategic investment purposes. Other suggested positive impacts included support for destination management, including managing visitor numbers across the year, and widening the tax base.
  • Industry representatives highlighted potential negative impacts, including on visitors’ disposable incomes for the duration of their stay; potential signals around how welcome visitors were, and value for money of Scotland as a destination, particularly when attracting international conference business and visitors; and arising from interactions with other costs of doing business.
  • Attendees highlighted the wider risks from the external environment, particularly around Brexit, along with potential complexity created by greater autonomy for Local Authorities in this area.

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

15. In general discussion, the following points were noted:

  • Attendees emphasised the importance of the use of potential funds being based on tourism needs and strategic priorities for tourism.
  • Industry representatives highlighted the importance of building and maintaining trust between industry and local authorities, and on industry having influence over use of funds.
  • Local Authority representatives highlighted difficulties inherent in hypothecation of revenues, but also that the intention behind the position set out by CoSLA and individual Local Authorities was not for revenues simply to be included in general funds, but instead to be used for investment in tourism and supporting infrastructure.
  • Some attendees emphasised the importance of using revenues from potential transient visitor taxes to support sustainable and inclusive tourism growth, including diversification to broaden areas’ appeal, was emphasised.
  • Concluding Remarks

16. The Cabinet Secretary invited VisitScotland and Scottish Government officials to summarise the discussion. Points noted included:

  • The importance of stimulating sustainable economic growth, and dealing with challenges around seasonality and productivity;
  • Identification of priority investments to support growth in the sector;
  • Challenges around identifying the tax base, particularly given that compulsory registration did not take place at present;
  • The importance of supporting the wider supply chain, and considering impacts on it;
  • Recognition of pressures on both local authority finances, and on the tourism sector’s competitiveness and profitability;
  • The importance of developing innovative approaches for responding to pressures from tourism success, and encouraging and supporting further growth;
  • Challenges around the evidence base, particularly in terms of impacts and costs.

17. Other attendees also highlighted the importance of going forward in partnership, particularly between government and industry, and the importance of trust and transparency between different parties.

18. The Cabinet Secretary thanked the group for their contribution to the discussion and reminded all that a high level readout of the discussion would be published and the points raised would be considered along with the points from the other engagement sessions. The Cabinet Secretary also reiterated that participants were invited to provide contributions in writing to the Scottish Government.

Tourism Team
December 2018



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