Tourism tax: discussion document

4. Taxation on Tourism

This section provides a brief overview of current taxation on accommodation and tourism businesses in Scotland, and discusses international experience of use of occupancy (or ‘tourist’) taxes.

Taxation on Tourism

Tourism businesses and accommodation providers are typically subject to a range of indirect or direct taxes which include:

• Corporation Tax (levied on a company’s profits);
• Employer National Insurance;
• Non-Domestic Rates (levied on ‘non-domestic’ premises, such as accommodation); and,
• Value-Added Tax (VAT) (levied on the value a business adds to goods or services during its particular stage of the production or distribution process).

In addition, most flights from Scottish airports are currently subject to Air Passenger Duty. Once this is replaced by Air Departure Tax, the Scottish Government is committed to reducing this, and abolishing when resources allow. There are currently no occupancy taxes in operation within Scotland.

Non-Domestic Rates

Non-domestic rate bills are derived using the rateable value of a property multiplied by the tax rate (poundage) and adjusted for any exemptions, reliefs or supplements. The rateable value is determined by the independent Assessors, based upon a property’s notional market rental value if it were vacant and to let. There are around 253,000 properties on the current roll with a total value of around £7.4 billion.

Revaluations of all properties take place periodically to ensure market values are accurate. The most recent Revaluation took place in 2017; the next will take place in 2022 from which point the revaluation cycle will be every three years. Rates are set annually by Scottish Ministers and administered by Local Authorities. Councils retain the revenue collected in their area and apply any relief or supplements.

Details of the poundage for 2018-19 is presented in Table 3 below:

Table 3: Non-Domestic Rates, 2018-19, Scotland

Poundage	48.0p
Large Business Supplement (LBS)	2.6p
Rateable value above which LBS is paid	£51k

Scotland typically offers a generous package of non-domestic rates reliefs including the Small Business Bonus Scheme, empty property relief, charity relief and transitional relief. With regards to tourism, properties with a rateable value under £15,000, for example many smaller accommodation providers such as B&Bs may be eligible for 100% relief. Those properties with a rateable value from £15,001 - £18,000 may benefit from 25% relief although if a ratepayer had more than one business property, with a combined rateable value of between £18,001 and £34,000, they will receive 25% relief on each individual property with a rateable value of under £18,000.

In recognition of the impact of the 2017 revaluation on the hospitality sector, in the financial year 2017-18 the Scottish Government introduced a transitional relief for the hospitality sector which capped rates increases at 12.5 per cent in real terms for all but the largest hospitality providers (and offices in the North East of Scotland). That relief was extended in 2018-19 and on 26 October 2018, the Minister for Public Finance and Digital Economy confirmed the relief would remain in place until the next revaluation in 2022.

Table 4 below presents the frequency and level of business rate relief for various accommodation types across Scotland^[12].

Table 4: Visitor Accommodation Properties Subject to Non-Domestic Rates, 2018-19

Property Type	No Relief	Partial Relief	Full Relief	Total Premises	Premises receiving Partial / Full Relief, % of Total
Self-Catering	2,170	520	12,220	14,910	85%
Hotel	1,690	180	540	2,410	30%
Guest House	200	50	1,170	1,420	86%
Caravan	290	30	980	1,300	78%
Time Share Units	190	40	900	1,130	84%
Hostel	150	120	500	770	80%
Caravan Site	280	40	360	680	59%
Other	130	40	840	1,000	87%
Total	5,100	1,020	17,510	23,620	78%

Source: Scottish Assessors’ Valuation Roll and Local Authority non-domestic rates (2018)

Value Added Tax

VAT is levied on transactions, and acts as a tax on final consumption. The VAT rate in the UK is set by the UK Government, and governed by EU directive 2006/112/EC^[13], which imposes a common system of VAT across EU member states. VAT is levied on a number of goods and services within the UK, including areas of expenditure related to tourism, such as:

• Renting of hotel accommodation;
• Admission to cultural services;
• Admission to amusement parks;
• Restaurant and catering services; and,
• Admission to sporting events.

The standard rate of VAT within the UK is currently 20 per cent. This rate is around average in terms of standard rates of VAT in the EU, with 17 EU Member states having higher standard rates of VAT^[14]. A number of EU countries also apply reduced rates of VAT on tourism-related areas of expenditure. However, the UK currently does not, and instead applies the standard rate to the items set out above. This means that the UK has amongst the highest VAT rates applied to accommodation among EU Member States, with only Denmark applying a higher rate. Table 5 and Chart 5 show EU Member States’ rates of VAT applied to Renting of Hotel Accommodation and Standard Rates of VAT^[15].

Table 5: Standard and Hotel Accommodation VAT Rates Across EU Member States, 2017

EU Member State	Standard VAT Rate	VAT Rate Applied to Accommodation
Austria	20%	13%
Belgium	21%	6%
Bulgaria	20%	9%
Croatia	25%	13%
Cyprus	19%	9%
Czech Republic	21%	15%
Denmark	25%	25%
Estonia	20%	9%
Finland	24%	10%
France	20%	10%
Germany	19%	7%
Greece	24%	13%
Hungary	27%	18%
Ireland	23%	9%
Italy	22%	10%
Latvia	21%	12%
Lithuania	21%	9%
Luxembourg	17%	3%
Malta	18%	7%
Netherlands	21%	6%
Poland	23%	8%
Portugal	23%	6%
Romania	19%	9%
Slovakia	20%	20%
Slovenia	22%	10%
Spain	21%	10%
Sweden	25%	12%
UK	20%	20%

Source: European Commission (2017a), Database of Key Taxes on the EU Tourism Sector, August 2017

Chart 5: Standard and Hotel Accommodation VAT Rates Across EU Member States, 2017

Source: European Commission (2017a), Database of Key Taxes on the EU Tourism Sector, August 2017

Occupancy Taxes

Occupancy taxes (also referred to as bed, room, tourist or transient visitor taxes) are largely focused on tourism or accommodation providers, and are typically levied on short term residences in paid accommodation^[16]. They are levied by eighteen^[17] EU Member States, and by others including the USA, and Canada. Among EU Member States, over one-third (the UK, Ireland, Denmark, Sweden, Finland, Estonia, Latvia, Luxembourg and Cyprus) do not levy an occupancy tax. Among EU Member States that levy an occupancy tax, all with the exception of Malta do so at local government level – i.e. at city, municipality or region level.

Models of occupancy taxes vary across EU Member States, and across cities. They have been levied on a number of bases, including^[18]:

• Per person, per night;
• Per room, per night;
• As a proportion of the room cost (in the case of cities like Amsterdam and Berlin).

Tax rates applied also vary widely. Some cities, such as Paris, Rome, Venice and Barcelona, vary the tax levied according to the quality rating of the accommodation, while others such as Lisbon operate a fixed charge per person, per night. Reduced rates or exemptions may also be applied, for instance for children, local residents, or business travellers^[19], while caps on tax levied may also be applied^[20]. Annex A gives examples of models and rates operated across different EU Member States.

Approaches to collection may also vary across jurisdictions: they may be included in the price paid in advance for accommodation, or may be payable in person; they may be paid by the accommodation owner directly, or through intermediary platforms like AirBnB. In some instances, such as in Germany, VAT may also be applied on top of the tax^[21].

Use of revenues from occupancy taxes varies across areas that levy them. In a number of EU Member States, including Croatia, France, Malta and parts of Spain, revenues from occupancy taxes are hypothecated, with revenues directed towards supporting the tourism sector^[22]. Activities supported include:

• Croatia: funding for local tourist boards and financing of promotional activities;
• Spain (Balearics): environmental protection and conservation, historical and cultural preservation and restoration, workforce training;
• Lithuania (Palanga): improvement of tourism marketing and city infrastructure;
• Germany: access to facilities in some spa towns.

The beneficiaries of occupancy taxes can also vary. In the case of Croatia, revenues are shared among different bodies, including cities, counties, the national tourist board, and the Red Cross, while Catalonia distributes revenues among municipalities, local tourist boards, and the regional tourist agency.