The business of tourism

David Jessop

From the Balearics to Barbados, tourism and taxation appear to go hand in hand.

Governments worldwide seem to see raising revenue from tourism as the equivalent of a victimless crime. Faced with the likelihood of falling income from import tariffs and customs charges as a result of trade liberalisation, finance ministers, globally, are having to look for new approaches to taxation: especially if they are to keep domestic taxation low while delivering high levels of social service.

For this the hospitality industry is seen as ideal. Tourism, a discretionary act, usually involving individuals from overseas who for short periods of time are prepared to spend more than they otherwise would to enjoy themselves, has come to be seen as a soft and politically easy fiscal target.

consequence

As a consequence Caribbean tourism-related taxation can include one or all of the following: room taxes, import taxes, consumption taxes, environmental taxes, arrival and departure taxes, casino taxes, tourism specific property taxes, value added tax, corporation tax, import and duties and customs services charges. Moreover, some countries there are taxes that are unique: for instance, St. Lucia has an entertainment tax collected by hotels from musicians and the like. The assumption is that the visitor will pay.

But there are signs that this ever-increasing tax burden is set to be challenged by troubled industry leaders who see governments' thirst for new sources of revenue as threatening Caribbean tourism's ability to compete globally.

The effect of taxation on the Caribbean industry was the subject of a recent study by the PA Consulting group for the Caribbean Hotels Association (CHA). Entitled 'Taxes and costs of the Caribbean Hotel Sector', the document analysed operating costs, tax levels and the fiscal barriers and incentives the industry has to operate with.

maintaining competitiveness

The report recommends that governments look again at taxation practices in tourism in the light of the increasing challenge the industry is facing in maintaining its competitiveness. It notes that the costs of labour, construction, refurbishment, utilities and food are rising. If the burden of direct and indirect taxation also continues to increase, the sector could, in some nations, become less attractive to both visitors and investors. The report also calls for CARIFORUM governments to consider new tax concessions for hotels that are upgrading plants, undertaking environmental improvements or training staff.

Almost any debate about taxation is polarising. What is required is a much better understanding between governments and the tourism industry why taxation must not pass beyond what is fair. What is needed are well thought through fiscal policies that optimise the profitability of an industry that an ever increasing number of Caribbean nations now depend on to provide employment, foreign exchange and economic growth.