Last year, the Welsh Government announced that it would be considering the introduction of a new tax following the new fiscal responsibilities that have been awarded to Wales.
These included a disposable plastics tax on plastics – such as coffee cups – that cannot be recycled; a vacant land tax which would address the issue of so- called “land banks” which restricts the land available for new housing; and a levy to support social care.
However, probably the most controversial amongst the business community was the proposal to introduce a tourism tax which would be a small charge on visitors staying in accommodation.
This seems like deja vu all over again and takes me back to the controversy, over eleven years ago, when the Local Government Association’s recommended that a ‘bed tax’ should be set to fund public transport schemes.
At the time, a proposed 10 per cent tax per night on all overnight accommodation - added to the 17.5 per cent of VAT - could have resulted in UK becoming one of the highest taxed holiday destinations in Europe.
Fortunately, this proposal was quietly dropped due to massive opposition from the tourism industry but it would seem that this whole issue has been raised again by those advising the Welsh Government on new taxation.
Of course, we don’t know what rates would be charged by the Welsh Government but the problem is, as everyone knows, is that once a new tax is introduced, it is then an easy option to increase it when there are budget shortfalls in other areas.
Naturally, there is concern given that the UK already has one of the highest levels of taxation on tourism businesses compared to other European countries because of the level of VAT charged.
In fact, only Lithuania charges VAT at a higher rate than the 20 per cent VAT in the UK with lower rates in many other countries including Ireland (9 per cent), Netherlands (6 per cent) and Spain (10 per cent).
In addition, whatever tax would be levied would not, at this moment be charged in England, thus arguably placing Welsh tourism businesses potentially at a competitive disadvantage.
Not surprisingly, tourism operators across Wales have suggested that introducing such a tax could have devastating effect in Wales where the tourism industry generates nearly £9 billion for the economy and supports around 242,000 jobs. This is at a time when there are significant challenges, not least from our eventual exit from Europe.
The Bevan Foundation – which proposed the tourism tax through its 2016 Tax for Good project – have suggested that as tourism results in greater traffic congestion, higher levels of waste and the need for increased maintenance of key attractions. As a result, it believes that it is only fair and reasonable to charge tourists to meet these extra costs on taxpayer from the activities of those visiting the country.
Others who support the introduction of this tax argue that other countries such as Spain and Italy have introduced it with little effect although this seems to be for different purposes than just revenue raising.
For example, a new Sustainable Tourist Tax is being introduced for visitors to Mallorca and Ibiza to raise money towards the protection of resources on the islands.
So the question is whether this is just another way of raising taxation within Wales or will the revenue raised really go towards improving the tourism facilities as promised? To be fair, the Bevan Foundation has suggested that if this tax is pursued, it is important that the revenue is earmarked to support the local tourism industry in some way so that operators do not feel that their customers are being unfairly targeted.
However, some doubt that it will and as every driver knows, very little of the road and petrol tax charged on cars has actually gone to improve the transport infrastructure in this country. In fact, how soon before Assembly Members make the case to use the tourism tax to support other critical areas of funding?
In addition, it would be a dramatic own goal for a Welsh Government to offer up to £300 million to one company to support the Swansea Tidal Lagoon – even though it is one of the most important potential developments for the economy – whilst creating a tax that will hit tens of thousands of small firms in the tourism sector.
Therefore, it is probable that one of the other three taxes will be chosen to be implemented. However, if the Welsh Government does decide otherwise, then at a time when Wales is trying to develop a sustainable high value-added tourism industry, it is critical that before any potential introduction it fully consults with tourism operators to understand the impact that any new tax could have upon them and their businesses at a time the economy will be facing unprecedented challenges following Brexit.