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David Jessop.

The Business of Tourism

Taxes in tourism - how much and how far?

David Jessop, Contributor

Is there a point at which visitors will stop travelling to certain destinations if tourism-related taxes become too great? This hard-to-answer question lies at the heart of growing concerns amongst airlines and those who sell the Caribbean tourism product overseas about whether it is possible to quantify the point beyond which the elasticity of visitors' pocket books will not stretch.

There is already circumstantial evidence that taxes, such as that being levied by the United Kingdom in the form of air passenger duty, are beginning to have a negative effect on visitor arrivals. Recent research further suggests that tourists are beginning to look more closely at the sum total of taxes that are being levied at the point of departure, and by destinations on tickets and hotel rooms.

in The Bahamas

For example, in The Bahamas, tourism taxes were recently increased. Departure tax was brought into line with other Caribbean destinations at US$20, cruise departure tax will be increased shortly to US$20 and hotel room taxes have risen to 10 per cent.

So concerned have some in the industry become that there is a sense that if tourist-related taxes continue to increase, some aspects of the low end of the Caribbean tourism model, particularly for those travelling from Europe, may not be sustainable.

Over the last three decades, tourism has grown exponentially, despite periodic downturns as a consequence of recessions or security concerns. It has done so because air transport, accommodation and holiday-package concepts have on the whole become cheaper and have enabled visitors to see the Caribbean as good value for money in comparison to other warm weather destinations, often nearer the visitors' country of origin.

in a recession

However, in a recession, price-conscious visitors have begun to look carefully at the overall cost of vacations and are finding ways of limiting expenditure through selecting all-inclusive destinations cruises, packages as well as looking at vacations nearer to home.

All of these present something of a conundrum for an industry where they and Governments are complaining on the one hand about those outside like the UK that are imposing takes on ticket sales, while on the other they themselves are considering a budgetary provision or airline-ticket tax to fund national or regional marketing programmes aimed at attracting visitors at a time of economic recession.

Speaking about this recently, Prime Minister Bruce Golding noted that he and others in the region had been wrestling with this conundrum: "We are at a point where we have virtually exhausted the capacity of air tickets to absorb any more taxes. Now would not be an appropriate time for us to go and visit more taxes on them," he asserted.

With no new money for marketing, visitors becoming increasingly price conscious, industry profitability and occupancy falling, and the airlines and tour operators worrying about competitiveness, it seems that the only way to try to stimulate growth and increase revenues might be by linking destination marketing to selective reductions in taxation.