“In this highly globalized world, with rising incomes and low travelling costs, tourism has become very accessible, when coupled with the social media-fuelled culture of “YOLOing”. Many often forget they may not be at home but are in someone else’s.”
INTRODUCTION
Let’s say you have finally saved up enough for that vacation abroad you have been eagerly waiting for, you have thoroughly budgeted and made do with the eye-watering sum you will be spending this summer. But did you account for the taxes you will end up paying?
Many hot tourist destinations have started imposing special fees on tourists, which they will have to shell out for their stay. It’s a tourist tax essentially, while tourists have to pay a variety of taxes, this is a more direct charge levied on their vacation.
This article seeks to cover precisely this, the need which has led policymakers to introduce them in the first place, touching upon the tourism industry in the process, how they can help resolve this issue, talking about the direct economic implications like its impact on tourist revenue, as well as what policymakers should keep in mind while navigating such policies.
THE NEED
While a wide variety of taxes are imposed on tourists, the kind we wish to focus on are more is a more direct levy, which is a special fee incurred during your stay. The most common mechanism for enforcing this is levying a duty on the overnight stay of the said tourist, this may be a flat rate or a percentage of the accommodation bill. Many governments across the world, especially in hot tourist destinations have already implemented them or are mulling over doing so. But why? That’s an important question to ask because logic would tell you, that tourism-related activities can give a major boost to the economy by driving consumption.
Their support helps create jobs and drive growth and also creates a multiplier effect in the economy. This becomes especially clear when you think of countries like Mauritius, a small nation which is heavily dependent on its tourism industry, which has also brought such measures.
There are a lot of negative externalities to tourism which need to be paid attention to. In this highly globalized world, with rising incomes and low travelling costs, tourism has become very accessible, when coupled with the social media-fuelled culture of “YOLOing”. Many often forget they may not be at home but are in someone else’s.
All of this high-volume tourism ends up hurting the locals. When the party is over, they are the ones left to clean up the mess left behind. Further, the overcrowding gives rise to unneeded hassle and noise ruining the quality of life for the natives, it leads to congestion and stresses the local resources, further, very often the local infrastructural systems like public transportation, water supply and drainage systems are not well equipped to handle this level of demand so brought. Also, it creates upward pressure on home prices, investors buy up entire buildings some where families have been living for decades, to be used as airbnbs, squeezing supply and heating the home and markets in popular tourist spots. All of these factors significantly raise the expenditure that needs to be incurred for upkeep and hosting these tourists.
This has given rise to a phenomenon called “tourism phobia”, a counter-movement of sorts, in response to the huge increase in tourists witnessed, driven by frustrated locals. It is seen in the form of angry graffiti, passive-aggressive behaviours towards visitors, to even anti-tourist protests.
This large economic and social cost is what makes the need for a tourism tax felt, it could help in creating social support which can help deal with these negative effects. But for this to work government would need to deploy these funds to more long-term sustainable practices which help improve lives for the residents as well as tourists.
WILL PEOPLE PAY?
Before going deeper into policy, we need to answer one simple question- are people willing to pay?
While there have been mixed opinions on this, people on both sides present valid views. The opponents say that this could lead to the tourists being overtaxed, making vacations even more expensive, this could discourage them from travelling, making the local destination less competitive, being a devastating blow to tourism-dependent economies. But there have been multiple surveys which suggest people may be willing to cough up money, with the actual impact on international tourism being marginal- implying this demand may be relatively inelastic. A survey conducted in Edinburgh, found 88% of peak-period visitors and 80% of off-peak visitors would still come, even if a levy was introduced.
Further, research on Maldives, shows that such taxes can adversely affect inbound travel, but the demand is highly dependent on source markets considered. More specifically, a 10% increase in taxes will lead to only a 5.4% fall in demand.
WHAT SHOULD POLICYMAKERS KEEP IN MIND
Now that we have talked about their viability, it should be discussed, how should these policies be drafted, and what should policymakers keep in mind while drafting such policies.
The most important thing that policymakers should strive for is transparency. Multiple surveys have shown that people may not be against paying such taxes if they know the money is being used for the right purposes. The government should follow this principle, and earmark funds for the benefit and promotion of tourism-related economy, and vital capacity building in the form of infrastructural developments which support the local area, helping restore the quality of life for the natives, this becomes an important heavy demand from tourists tends to have a detrimental impact on it.
Research findings also suggest that the use of these tourism tax revenues to deal with the budget deficit and grow the economy may have implications for the tourism policy. An increase in taxes not matched by an increase in tourism-focused expenditure by the government would lead to a contractionary effect and ultimately harm the tourism sector of the country. Thus, policymakers should focus on such measures which integrate tax revenue benefits by enhancing the destination image and improving local development for long-term sustainability are most desirable.
Also, employing different tourism rates for different source markets could be a good strategy for maximizing the revenues raised while ensuring the number of tourists doesn’t take a hit.
Further, since the issue lies at the heart of the public discourse, the government should consider consulting the public while drafting such policies. While enforcing such mechanisms, as has been discussed earlier in various lengths, these issues plague the local level the most, accordingly involving the local government at the grassroots level becomes crucial to come up with effective measures, since they would bring the best idea about the scenario.
Offering tourists channels where they can get detailed information on the various legislative measures being enforced like this, can also go a long way in ensuring smooth enforcement of such policies.
CONCLUSION
Ultimately a question of sustainability, the high number of tourism we see in our increasingly globalized world has led to massive economic gains but has also had a lot of unintended negative consequences, in such a situation the need to build better systems which don’t hamper the environment while still supporting the industry becomes crucial. Taxes can be one way in a more holistic policy action to solve this issue. This explains why many countries are moving towards imposing them, but policymakers should understand they aren’t a perfect solution. Planning should take into account the negatives of higher visitors and how ‘more’ may not always be ‘better’. Raising taxes would be a natural consequence when you aren’t paying your way through, but while it is justified, it can’t solve the issue on its own.
By:-Nimay Jain