The Paradox of Taxing Travelers for Overtourism

If overtourism is the concern du jour, then tourist taxes are increasingly being posed as one solution. This year alone, Japan, New Zealand, Bali, Venice, Edinburgh, Amsterdam and others have either passed or implemented plans for new taxes. Not without reason, these are many of the same destinations also in the headlines for an overhwhelming onslaught of visitors.

Taxing tourists isn’t new, of course. Transient room and accommodation taxes have long been levied on overnight visitors in many destinations. But this relatively recent crop of taxes are something of a different breed than in years before. Rather than being a straightforward way to raise money for tourism marketing efforts, they are often framed as a response to overtourism — a way to lessen the strain that tourism itself brings. In addition, as is the case in Edinburgh, they can be a way for local governments to signal to fed up locals they are doing something productive to meet the challenges tourism brings.

Taxes on a consumer good — alcohol, cigarettes, soda — are often viewed as a deterrent. If something is even slightly more expensive, the logic goes, some people are likely to say “no thanks.” But most destinations are not really in the business of telling tourists to stay away — at least not yet. This raises a question: In the age of overtourism, does it make sense to actively promote tourism, while also taxing it?

The Holy Grail

The policies of many destinations would suggest that coexistence is possible. That’s because the goal isn’t necessarily less tourists, but rather that holy grail of an effectively-managed, sustainable, and lucrative tourism industry. Take New Zealand for example. The island nation’s International Visitor Conservation and Tourism Levy (IVL) went into effect in July. Folded into the visa or new visa-waiver program cost, it is managed by the government’s Ministry of Business, Innovation and Employment.

Iain Cossar, the ministry’s general manager for tourism, told Skift that the intent of the tax is not intended to dissuade travelers from coming, but rather “to improve the experience for travelers, and for locals, by helping to fund critical infrastructure, help destination management efforts, improve biodiversity and protect and enhance the environment. This won’t just benefit international visitors, but also local communities who will be better placed to make the most out of tourism.”

New Zealand’s destination marketing organization, Tourism New Zealand, which is funded by the central government, told Skift it actively supports the implementation of the tax. That’s a sign of the growing trend of “destination management,” as mentioned by Cossar. Anna Leask, a tourism management professor at Edinburgh Napier University who participated in Edinburgh’s public consultation on the city’s tax, says this kind of shift is happening on a broad scale.

“The whole structure of destination marketing organizations (DMOs) is changing so much,” Leask said, noting that many DMOs are becoming more management-centric, rather than a strict focus on attracting more visitors. “I think with the change of the profile of destination marketing organizations to becoming more broadly management-focused, marketing can sit underneath that. So [a tax and marketing efforts] are not really in conflict with each other.”

In fact, some might contend that if the end goal is a sustainable tourism industry, targeted destination marketing is a better strategy than straightforward deterrence anyway. A paper published in June in “Current Issues in Tourism” on Macau’s debate over a tourism tax noted that “there is sentiment that a tourist tax in Macau is not a remedy in itself to address the increasing volumes of mass tourism to Macau, but rather other factors such as city branding strategy are important.”

The paper’s author Glenn McCartney, a member of business faculty at the University of Macau, went on to explain that Macau’s lack of a coherent branding strategy means that too many types of tourists come to the city expecting too many different things. Tourism officials promote the destination’s history, but that’s ultimately not what brings in the cash.

“The city brand has to be valid and believable — particularly in this era of social media with visitors able to immediately upload and share images, send messages, etc on their experiences,” McCartney wrote in an email to Skift. “Again while Macau has history, it’s the [resort industry] on The Cotai Strip and their entertainment that brings in [most of] the revenue.”

Similarly, Elsje van Vuuren, a communications representative at NBTC Holland Marketing, the country’s destination marketing group, told Skift that it supports the idea of tourism taxes when it supports “destination development,” rather than just pure marketing. While Amsterdam may not need help attracting visitors, she said, other locales in the country do, so effective provisions of such taxes — which are common at the city level across Holland, including in Amsterdam — will include marketing where appropriate, whereas elsewhere they may be focused on services and infrastructure.

Deterrence Is Still a Risk

As with any tax, not everyone will be thrilled. Accommodation providers, for example, are often the hardest hit because the responsibility of actually collecting the tax from the consumer — and thus the perceived increase in price — commonly falls to them. This is especially true if a tax is rolled out quickly, without enough lead time for providers to factor it into their future pricing.

In addition, though travel has fairly inelastic demand, deterrence is always a risk when the price increases. Take Amsterdam, for example, where a day tripper tax imposed on cruise liners earlier this year swiftly resulted in a loss of cruise dockings to the city.

Tim Fairhurst, secretary general of the non-profit European Tourism Association (ETOA), says whether a tax is harmful or a success is going to fall largely down the specifics of its implementation.

“[ETOA’s] initial reaction is going to be: don’t tax the people who are helping pay the wage bill. But that’s, in a way, quite simplistic. We think if people are looking at taxing the visitors as a way of contributing to local infrastructure, services, or what have you, then there really needs to be a good process.”

Best practice, Fairhurst notes, includes adequate notice (ideally 18-24 months) and a transparent public consultation process. (He noted that the consultation on Edinburgh’s tax — which has been agreed upon, but not yet implemented — modeled this well.) He added that a flat tax, as opposed to a percentage of a room rate, runs a high risk of being regressive, as it disadvantages travelers and accommodation providers at the cheaper end of the spectrum. He also added that a common narrative used by spokespeople in the media in relation to these taxes — that they are intended to attract a higher-spending, lower-impact traveler — are misguided.

“I find that a sort of dangerously elitist road to go down,” Fairhurst said. “Commentators seem to be suggesting that we need a better kind of tourism and this is a kind of control mechanism that makes that more likely. I see no evidence of that at all.”

‘Tourists Don’t Vote’

Perhaps the largest challenges of a tourism tax — once it’s passed, that is — is ensuring transparency around how it’s used. While Edinburgh’s government has clearly stated the tourist tax revenue will be ring-fenced strictly for services that benefit both locals and visitors, Leask notes that there was some concern that, in the end, “it wouldn’t be additionally, but displacement.” In other words, instead of being a bonus to the funds for services the council should already provide, it would make up for a paucity in government funds to deliver basic services like litter uptake and infrastructure.

Fairhurst echoes that concern for other destinations. “If the money just goes into a general pot because local finances are strained — if it’s just seen as a classic ‘tourists don’t vote, you can get easy money off them’ — that is not a smart way to go. And I don’t think that’s a sustainable approach to public finance.”

And when it comes to the perception of the traveler, instead of tricking them into paying the tax or concealing it, the best approach is to bring them on board, McCartney says.

“Does the visitor know why they are paying the extra bit? Such as to [maintain a] historical site in a responsible way so local and international visitors can both continue to enjoy it, or to collect increased rubbish from beaches/ocean fronts. If presented correctly, such as the sustainability pitch, there will be less push back,” McCartney wrote in an email. “In that way, then the destination marketing efforts don’t run contrary, and can even attract visitors who know the tax money is being spent for tourism management purposes.”

Lastly, getting private industry on board is key, Fairhurst notes. As they are, at the end of the day, as responsible for solving the challenges of modern tourism as the public sector is. Fairhurst suggests asking hotel reception upon checkout how the accommodation tax gets used as a kind of litmus test of private sector sentiment.

“I guarantee you get a fascinating spectrum of response. You get some people who are very negative and effectively throw their local destination under the bus and say ‘politicians — what do you expect?,'” Fairhurst said. “And then you get other people actually have a narrative. Because someone has taken the trouble to bring the supply chain with them. And they’re aware this money goes toward projects that are enjoyed by both the visitor and the community.”