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 E

National Discussion on Tourist Tax
Fifth Round Table Discussion, Aberdeen
Friday 11th January 2019


Kate Forbes, Minister for Public Finance and Digital Economy

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

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

Robin Haynes, Head of Council Tax Reform, Scottish Government

Richard Walsh, Tourism Team, Scottish Government

Sarah Simpson, Tourism Team, Scottish Government

Karen Shaw, Private Secretary, Scottish Government

Cllr Marie Boulton, Aberdeen City Council

Cllr Fergus Hood, Aberdeenshire Council

Cllr David Aitchison, Aberdeenshire Council

Cllr Graham L Sinclair, Orkney Islands Council

Gavin Barr, Executive Director - Development and Infrastructure, Orkney Islands Council

Jamie Coventry, Economic Adviser, Aberdeen City Council

Alistair Reid, Team Manager, Aberdeenshire Council

Richard Sweetnam, Chief Officer – City Growth, Aberdeen City Council

David Groundwater, North East Scotland Development Manager, Federation of Small Businesses

Tim Fairhurst, Director of Policy, European Tourism Association (ETOA)

Shane Taylor, Senior Policy and Government Affairs Executive, Aberdeen & Grampian Chamber of Commerce

Yvonne Cook, Head of Tourism Development, VisitAberdeenshire

Frank Whitaker, Vice Chair of the Aberdeen City & Shire Hotels Association

Willie MacLeod, Executive Director, Scotland, UKHospitality

Marc Crothall, CEO, Scottish Tourism Alliance

Introductory Remarks

1. The Minister opened the discussion event, which was the fifth 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 primary legislation should any tourism tax powers be devolved to local authorities, necessitated national consideration.

2. The Scottish Government was not seeking to consult on a discrete policy proposal through the national discussion. The national discussion events were an opportunity to discuss the evidence and views associated with Tourism Tax, marshalled under the four themes from the Scottish Government discussion paper.

3. The Minister noted that CoSLA had published their Transient Visitor Tax paper in June 2018, which called for greater devolution of financial control to local authorities: amongst these was a suggested power to levy a Transient Visitor Tax.

4. 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.

5. The Minister then invited Kevin Brady to provide an overview of the Scottish Government’s Discussion Paper.

Scottish Government Tourism Tax Discussion Paper

6. 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 tourism tax.

7. 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 tourism 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.

8. 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 four themes, with the supporting questions within them acting as prompts for discussion.

General Discussion

9. The Minister invited the Elected Members attending the discussion event to give their thoughts on the topic. The following points were noted:

  • Circumstances differed across Scotland, with conditions and challenges in areas like Aberdeen, Aberdeenshire and Orkney being different to those faced areas like Edinburgh or Skye.
  • There were important questions around links between revenues raised and their use; whether the same model would operate across Scotland, or vary across areas, and what rates would be; who would be responsible for collection; and how visible a tax would be.
  • Aberdeen City Council had been exploring the feasibility of a tax on accommodation for several years.
  • While recognising the pressures on accommodation providers, strategic challenges facing areas like Aberdeen included supporting diversification of Aberdeen’s economy; sustainable provision of tourist and cultural infrastructure; and maintaining an attractive offer to tourists, students and residents. Areas like Orkney also faced pressures around providing essential infrastructure and facilities expected, and required, by visitors.
  • Recognition of the importance of a clear link between taxes being collected and their use in this instance.

10. There then followed a general discussion around the questions raised in the discussion document, and around the broader issue of tourist taxes.

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

11. In discussion, the following points were noted:

  • Industry representatives emphasised the importance of focusing on principles of a tax, before considering issues of tax design. Industry representatives indicated that they opposed a tax on grounds of a negative impact on price competitiveness, particularly in light of the higher rate of VAT applied on accommodation in the UK than in other EU member states, although the negative impact of a tax would be felt at the margins of the industry. UK Hospitality analysis suggested a £2 per room per night tax would result in a loss of visitor expenditure of around £200 million.
  • Industry representatives raised questions around the alignment between those contributing to pressures, and those bearing the cost of taxation, highlighting the pressures created by day visitors, who would potentially be unaffected by a tax on accommodation providers.
  • It was observed that the national discussion process broadly represented good practice internationally, in terms of consideration of principles and practicalities in advance of decision-making.
  • Some attendees suggested that the European experience of tourist taxes was that such taxes were generally operated at a local level, based on local circumstances: at national level, decisions related to whether to give permission to local areas to levy taxes. Important national considerations included issues of reciprocity in the use of taxation and cumulative impacts from taxation. The importance of providing a long lead-in time to the introduction of a tax was important for securing buy-in.
  • Some attendees indicated that, while they would be supportive of local devolution of taxation in principle, greater detail was needed, and the design of any taxes would be important. There was also a need to ensure the debate was placed within the context of the total tax burden already experienced by the industry;
  • Industry representatives indicated local members were opposed to the principle of a tourist tax, on grounds of impacts on competitiveness and profitability, particularly given challenges and pressures in Aberdeen. The risks that a tax could pose to firms’ abilities to invest, and work against wider efforts to support sectoral growth, were raised, along with questions of whether revenues from a tax would be additional to existing local authority spending on tourism, and how a tax would operate in practice with commissions to online travel agencies.
  • Industry representatives welcomed the national discussion and Scottish Government discussion paper. They also highlighted the Scottish sector’s reliance on the domestic market; the risks posed to this market’s spending power posed by Brexit and wider economic conditions; that a tax on accommodation providers would not address pressures created by day visitors; and the need for greater understanding of potential economic impacts from a tax.
  • Industry representatives highlighted long-standing opposition among their members to a tourist tax; that requirements for businesses to collect and remit a tax would represent an additional cost for those businesses; that rationales for a tax differed across different areas of Scotland; and that a power devolved to Scotland’s 32 individual Local Authorities would create complexity, even if services were shared across Local Authorities. There were also questions around how a tourist tax would interact with arrangements for City Deals, particularly if the local authority partners to a Deal adopted different approaches to a tax.
  • Local Authority representatives highlighted that the rationale behind proposals for a tax in Aberdeen related to actions to support and attract tourism, based on a recognition of its value to Aberdeen’s economy. Activity had followed on from work by the Scottish Cities Alliance, and concerns about pressures on existing Council funding for tourism and culture: revenues from a tax would be intended for use to maintain and enhance Aberdeen’s offer. In areas like Orkney, policy rationales would relate to how to provide supporting infrastructure to meet existing and future expectations from visitors, and help bridge potential gaps between investment needs and available resources. Local Authority representatives highlighted challenges around providing funding for cultural services, given Authorities’ statutory obligations in other areas, and on issues around alternative approaches (e.g. equity concerns relating to charging users for access to cultural amenities).
  • Local Authority representatives also recognised and emphasised the importance of engaging with industry representatives around a tourist tax, should the power be devolved.
  • Industry representatives suggested a need to consider alternative approaches for supporting investment in tourism infrastructure. Suggested examples included reform to the Small Business Bonus Scheme, hypothecation of VAT revenues, or hypothecation of Non-Domestic Rates. Industry representatives also highlighted concerns around whether there was a level playing field across accommodation providers in terms of tax.

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

  • Local Authority representatives suggested that Local Authorities had experience of revenue collection, but emphasised the need for burdens on businesses from collection to be light, and for links to be shown between revenue raised and services funded through it.
  • Industry representatives emphasised that administration and remittance of a tax would represent an additional cost to businesses. They also highlighted several areas of complexity, including: the need for new taxes to be reflected in the price presented to consumers, in line with existing legislation; whether tourist taxes would be subject to VAT; whether commission would be chargeable on tourist taxes; and complexities from incorporating tourist taxes into existing booking and IT systems.
  • Industry representatives also highlighted the current absence of a consistent picture of the number of accommodation providers across each Local Authority, which was further complicated by providers operating through collaborative economy platforms. Industry representatives highlighted that there was no compulsory registration scheme for accommodation providers currently in operation in Scotland.
  • Industry representatives also suggested there may be equity issues related to focusing solely on accommodation providers.
  • Some attendees advised of the importance of wider messaging around a tax, and articulating (to both businesses and visitors) the links between revenues raised and benefits generated by them. The risk of reputational damage for destinations that failed to do so was highlighted.
  • Local Authority representatives suggested that, given variations in circumstances across Scotland, a uniform tax rate applied across Scotland would not be appropriate.
  • Some attendees highlighted variations in rates and models across Scotland would introduce complexity, particularly for businesses that operated in more than one Local Authority. The importance of avoiding taxes that were disproportionately costly to administer and collect was recognised, while issues around collection arrangements, the potential parameters of a tax (e.g. on variation around tax rates), and the scope for complexities through operation of exemptions from taxes were also raised.

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

  • Industry representatives highlighted the potential need to distinguish between different categories of visitor, particularly leisure and business tourists, when considering implications and impacts of tax. Some attendees highlighted the need for additional research into visitors’ price sensitivity and potential behavioural responses, along with the need for consideration of the behaviours that a tax would be intended to incentivise.
  • Attendees’ views differed on potential impacts. Some attendees felt that a tax levied on only some areas of Scotland would have an adverse impact on different destinations’ competitiveness, and that a national approach would support a level playing field. However, others suggested that impacts would depend on uses that revenues were put to, which would depend on local circumstances.
  • Industry representatives advised that existing survey evidence (e.g. STR’s survey of visitors to Edinburgh) indicated the potential for behavioural change at the margin, and visitors being displaced across Local Authority boundaries. Industry representatives also highlighted the risk that a tax based on a hotel’s ‘star-rating’ could be seen as adversely impacting those seeking to improve the quality of their accommodation offer. It was also raised that current star-rating systems in Scotland were voluntary, rather than based on a compulsory rating system.
  • Some industry representatives highlighted the potential for Scotland-level reputational impacts from introduction of a tax, regardless of whether implementation was limited to a small number of Local Authorities. Impacts would also vary depending on whether businesses could pass on additional costs from tax: the scope to do so could be limited in cases where accommodation providers were negotiating with large clients.
  • Some attendees suggested that price sensitivity could vary across Scotland, with potentially notable differences between urban, rural and island areas.

Concluding Remarks

12. The Minister gave an overview of issues raised within the discussion. These included recognition of different visitor types, their characteristics, and pressures arising from different tourist trips; the potential for behavioural change as a result of a tax; discussions of how funds should be used, and issues around hypothecation of taxation; and evidence gaps around issues such as potential behavioural responses.

13. The Minister thanked attendees for their contribution to the discussion. The Minister reminded attendees that a high level readout of the session would be prepared by officials and published and that they were also invited to provide written contributions should they wish to do so.

Tourism Team
January 2019



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