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The cost of visiting Iceland is likely to rise next year after the country’s government announced plans to treble VAT on accommodation, restaurant meals and tourist attractions.
The proposal, which would see VAT increase from seven per cent to 25.5 per cent from May 1, 2013, has been criticised by tour operators, who have suggested that holidaymakers could be put off visiting the country.
“Iceland [had been losing] its perception as an expensive destination,” said Tom Jenkins, chief executive of the European Tour Operators Association (ETOA). “This tax rise effectively punctures that impression.“
Iceland’s long-established reputation as a costly holiday destination was transformed by the global financial crisis and the country’s banking collapse, which saw the value of the krona plummet against the pound and the euro.
That, combined with the eruption of the Eyjafjallajökull volcano in 2010, which increased interest in Iceland’s geological attractions, has seen the country soar in popularity with foreign travellers.
Iceland attracted 210,000 overseas travellers in 1997, according to the ETOA. That had increased to nearly 600,000 in 2011, and is expected to rise by a further 16 per cent this year.
Mr Jenkins added: “What is strange is that Iceland has been a textbook example of the virtues of cutting indirect taxation in tourism. In 2007, it halved tax on tourism services from 14 per cent to seven per cent. By 2008, tax receipts from tourism were six per cent higher than they had been in 2006.”