Tourism Economics and Laws

(Elective Course)
23-3-2020
Dr.Eid Ashry

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 Taxation of Tourism

Chapter Six

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 Defining Tourism Taxation
• Defining tourism taxation is not as easy as defining
general taxes for two reasons:
• firstly, tourism taxation is a relatively new branch in
the tourism literature; and
• secondly, there are no such things as "tourism taxes" in
the general tax regime that are readily identifiable. This
raises questions as to what constitutes tourism taxes and
how to identify them‫ز‬
• However, by considering on which products the taxes
are imposed, and their impact, tourism taxes can be
identified.

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 The WTO Definition
• According to WTO, tourism taxes are "taxes which
could be described as applicable specifically to tourists
and the tourism sector or, alternatively, if not specific
to the tourism sector, those which are applied
differently in tourist destinations".
• These taxes come in a variety of ways and, it is
observed, as shown in the Table on page 112 and 113,
that there are more than forty such taxes world-wide.
Some of these taxes are imposed on tourism businesses
while others are imposed on tourists.

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 Nature of Tourism Taxes
• By looking at the different types of taxes shown in the
Table, one might wonder how, and on what basis, some
of these are considered tourism taxes. They may
include, for instance, passenger movement charge,
visa charges and toll charges.
• Although these are imposed to cover the cost of
provision of such services and, in some cases, everyone
else other than tourists pay these charges, it is often
argued that these charges act as barriers to
international movements of people. Travellers have
often argued that the visa application process is
cumbersome and time-consuming. Against this
background, these charges may well be recognised as
tourism taxes.
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 Types of Tourism Taxes
• In order to gain a clear understanding of the
issues related to tourism taxation, it is
important to look at different types of tourism
taxes, categories, and different sectors that are
affected by tourism taxes. Tourism taxes can
be classified in two different ways as shown in
following :

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 First Classification
• Tourism taxes can first be classified by looking at the
nature of the tax. Tourism taxes are divided into two
categories, namely, general taxes and special or
differential tourism taxes.
• General tourism taxes are "those imposed generally on the
supply of tourism goods and services, income arising from
tourism businesses, and compensation to employees of
tourism businesses".
• While it is true that these are essentially part of general
taxes, both tourism suppliers and tourists bear a significant
portion of the tax burden. Hence, these taxes constitute
tourism taxes and are accordingly defined as general
tourism taxes.

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 Special tourism taxes
• In addition to these general tourism taxes, the
tourism sector is also subject to some other
special taxes and they can be defined as "those
imposed specifically on the tourism product or
its components and tourism service providers.
• There are two reasons why special tourism taxes
are important: first most of these special taxes are
imposed on the sector in addition to existing
general taxes; and second in most destinations
there are more special tourism taxes than general
taxes

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 Second Classification
• This classification is done considering the
party on which the tax is imposed thus tourism
taxes are broadly categorized into two,
namely:
• (i) taxes directly imposed on tourists; and
• (ii) taxes imposed on user businesses. Special
attention is paid to identifying the sectors or
industries that are affected by tourism taxes.

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 Taxes Imposed on User Businesses
• Different taxes imposed on tourism businesses around
the world, such taxes are identified. Air transport, road
transport, food and beverages, hotel and
accommodation, recreation and other services are the
major tourism sectors that could be directly affected by
tourism taxes.
• Almost all these sectors are largely dependent upon
international and domestic tourism. Furthermore, these
are the core sectors by which a significant portion of
the composite tourism product is produced. The
imposition of taxes on such sectors/businesses could
discourage them and could jeopardize the growth
momentum of those sectors.
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 Taxes Imposed on Tourists
• Taxing tourism businesses does not seem as lucrative as
taxing tourists consequently; tourists are often targeted
by taxation more than tourism businesses.
• Although special taxes imposed on tourists are
numerous, they may have less significance in terms of
tax revenue. For instance, general taxes such as
VAT/GST, wholesale sales tax or sales tax could
generate much more tax income than special taxes.
Moreover, as noted above, the advantage of using these
consumption taxes in tourism is that they do not need
special deliberate tourism tax policies.

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 Principles of Tourism Taxation
• In appraising a tourism tax system, it is
imperative that such a system is assessed
against tax principles. It is widely accepted
that good taxation should comply with three
main principles; (i) efficiency; (ii) equitability;
and (iii) administrative simplicity.

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 Tourism Taxes and Efficiency
• Efficiency stands for the minimum distortion
caused by the tax system. In the case of a GST,
it should result in a minimum change in
patterns of consumption from the untaxed
patterns.
• Efficiency: The development of tax policies
that have a minimal effect on the demand for
travel and tourism,

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 Tourism Taxes and Equity
• Equity, a more subjective concept, concerns a
society's preference for how different income
groups and other groups should share the tax
burden. The idea is that higher-income earners
should bear more burdens than low income
earners do.
• Equity: The fair and even handed treatment
of travel and tourism with respect to other
sectors,

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 Tourism Taxes and Simplicity
• Administrative simplicity means that the cost
of collecting tax should be as low as possible.
• Simplicity: The smooth and efficient operation
of the travel and tourism system requires that
the taxes levied on the tourism industry should
be simple both in terms of mechanism for
payment and bureaucratic administration,

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 All Best Wishes
Dr.Eid Ashry

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