Visitor Levy Bill: business and regulatory impact assessment

4. Options

4.1 Sectors and groups affected by a Visitor Levy

4.1.1 Based on evidence gathered during the National Discussion, the consultation in 2019, and engagement with stakeholders, the following groups and sectors have been identified in this BRIA as key groups which will face additional benefits and costs as a result of a local authority exercising a new power to introduce a visitor levy^[15]:

• Local authorities that choose to introduce a visitor levy
• Accommodation providers^[16] (including hotels, B&Bs, guest houses, hostels, campsites, non-term-time student accommodation and self-catering accommodation including short-term lets that made available through collaborative sharing platforms) who would be liable for collecting and remitting a visitor levy unless an exemption is applied by the local authority
• The wider business community (beyond accommodation providers)
• Visitors (both domestic and international)
• Residents of local authorities
• The Scottish Government

4.1.2 In accordance with Scottish Government guidance, this BRIA assesses several options for implementing a visitor levy in relation to the potential costs and benefits arising to each of the identified groups.

4.2 Quantification of benefits and costs

4.2.1 Annex D of this BRIA sets out various background statistics on tourism activity in Scotland, including visitor numbers across different areas in Scotland, and data on the accommodation sector.

4.2.2 Evidence on costs and benefits are based on information drawn from discussions and surveys of accommodation providers and discussions with local authority partners and officials in jurisdictions in cities and regions that apply similar taxes. This BRIA provides a high-level assessment of the potential set-up and ongoing costs to local authorities associated with operating a visitor levy, as well as and a range of compliance costs that may also be incurred by different accommodation providers (see Annex E for more detail on the assumptions used in these costings). The BRIA also sets out high level estimates of the potential revenues that could be raised across Scotland (see Annex A for more detail on the methodology applied).

4.2.3 As part of the partial BRIA published in 2019, the Scottish Government also committed to seeking "to develop its understanding of the overall economic impact of a visitor levy" in the final BRIA, while recognising that challenges existed in presenting a reliable aggregate impact for Scotland given the discretionary nature of the power and the range of outcomes that were possible as a result of the Bill becoming law and the decision of local authorities.

4.2.4 Annex C sets out, in some detail, a qualitative exploration of factors that will influence the size of any wider secondary economic impacts arising from the decisions of local authorities to introduce a visitor levy. Briefly, we find that visitors' behavioural responses would likely be influenced by the basis and overall size of a visitor levy, particularly relative to their overall accommodation bill and total planned visitor spending, and could also be influenced by availability and price of alternative accommodation (e.g., hotel rooms in adjacent local authorities if these were not implementing a levy). Behavioural responses may also vary across visitors to different parts of Scotland, and at different times of the year; they may also affect duration of visit, accommodation choice, or decisions on ancillary spending. However, whilst recognising it's not possible to isolate the impact of the tax amongst other factors that determine the overall level of visitor numbers, evidence from cities that have introduced these types of taxes recently show that generally growth in visitor numbers has continued after the introduction of these taxes.

4.3 Interaction with UK reserved taxes

4.3.1 VAT is chargeable on holiday accommodation at the standard rate in the UK (20%), except for traders with a turnover below the £85,000 VAT registration threshold. HMRC have taken the view that under current UK VAT rules a visitor levy would form part of the total cost of accommodation and be subject to VAT (i.e., VAT would be payable on the base price plus the levy amount) similar to the manner in which duties on alcohol and fuel also attract VAT. As the Bill is passed through Parliament, Scottish Government officials will continue to liaise with their UK Government counterparts to discuss the VAT treatment of the visitor levy.

4.3.2 Should the visitor levy charge be required by HMRC to be included in the assessment of taxable income for accommodation providers, then this may result in some small businesses 'tipping over' into trading with a turnover above the VAT registration threshold of £85,000 (or the threshold at the time of introduction) as a result of the visitor levy being implemented by a local authority. Should this be the case, some accommodation providers may choose to reduce the number of nights they make available for visitors, so in order to remain below the VAT registration threshold. For a small number of businesses who elect to register for VAT as a consequence of these circumstances, VAT would then need to be charged and added to the cost of their accommodation (which would also include the Visitor Levy). These effects would, respectively, have an impact on the quantity of accommodation available and the price of accommodation offered by affected businesses.

4.3.3 As policy on VAT remains a reserved matter, this is not a matter Scottish Ministers can decide. The UK Government's final position on the application of VAT will not be confirmed until completion of the Bill's passage through Parliament. Should the visitor levy form part of the total cost of accommodation and be subject to VAT then there will be some impacts for businesses in these circumstances. The scale of any impact will vary depending on the turnover, operations and behavioural responses of accommodation providers. Due to this uncertainty, we have not provided costs on the impact of VAT but note this is an area where accommodation providers may incur additional compliance costs and a need to increase prices in the competition assessment in section 6 of this BRIA.

4.3.4 Should there be no VAT exemption, a visitor levy could also result in a marginal increase in UK VAT revenue by increasing the price on which VAT is paid, representing a benefit to the UK Exchequer that could be viewed as a spillover effect for the purposes of the Fiscal Framework. On the other hand, if reductions in economic activity occur as a result of the introduction of a visitor levy (e.g., due to reduced visitor nights spent in commercial accommodation or reduced visitor spend on accommodation) a spillover effect may arise in the other direction by reducing UK VAT revenues collected by UK Government.

4.3.5 The fiscal consequences of the interaction with VAT will primarily depend on decisions by the UK Government, but also on the number of local authorities that introduce a visitor levy, on the rate(s) at which visitor levies are set and the behavioural response of visitors and businesses.

4.4 Taxation of cruise ship passengers, day visitors and campervans

4.4.1 As part of the consultation and engagement with stakeholders on the proposals for a Visitor Levy Bill, it has also been highlighted that visitors who are responsible for potential sources of pressure on local areas, and the types of visitors who would be liable for a new tax (overnight visitors) may not necessarily be well aligned.

4.4.2 In particular, it was highlighted that a tax on stays in overnight accommodation may not capture day visitors or those staying in 'mobile accommodation' such as campervans or cruise ships. Although the Scottish Government considered how a visitor levy could be applied to these visitors, there are a number of practical barriers identified to implementing a tax on these types of visitors, which are outlined below.

Cruise ship passengers

4.4.3 The Visitor Levy Bill does not make provision for any type of taxation of cruise ship passengers. Cruise ship passenger levies exist in many forms across Europe and are in force in places such as Barcelona, Amsterdam, and Croatia, establishing a precedent for these types of taxes internationally. It is also the case that, prior to the disruption of the Covid-19 pandemic, cruise ship visits to Scottish ports and passenger numbers were increasing year on year. Despite recent improvements in offsetting its carbon impact, cruise travel continues to be considered one of the least sustainable forms of travel.^[17] More details can be found in Annex D.

4.4.4 Cruise ship passengers may not stay overnight within the local authority area(s) they visit in Scotland and in some cases, their expenditure and contribution to the local economy may be relatively limited. However, the potential for cruise ships to disembark large numbers of passengers within relatively confined areas in a short time period may result in congestion, and an impact on local infrastructure over time.

4.4.5 However, a locally administered cruise disembarkation levy carries a risk of inviting behavioural change from the cruise industry. For example, where one local authority chooses to apply a levy, cruise operators may choose to call instead at a neighbouring local authority to avoid paying the levy, with passengers travelling overland to the same intended destination. Alternatively, cruise ship companies may choose to visit other destinations in parts of Scotland that do not levy a charge or to other parts of the UK, or other ports in Northern Europe. This risk does not materialise to the same extent with a tax on overnight accommodation which is fixed geographically (at least in the short to medium run). There is a particular example of behavioural change linked to the introduction of a cruise ship tax in Amsterdam (see Annex B for details).

4.4.6 In preparing the Visitor Levy Bill it was also found that there were a number of practical barriers to the application of a disembarkation levy which, whilst not insurmountable, would require to be addressed before the Scottish Government would consider bringing forward legislation.

• The levy would need administered across the various types of port infrastructure in Scotland (public port authorities, trusts, and private ports);
• The need for a legal definition of 'cruise ship' and consideration of the type of vessels included and excluded from such a definition;
• The need for a legal definition of 'cruise ship passenger' as opposed to 'cruise ship staff/crew' and consideration of how that would be administered;
• Treatment of ships that anchor outwith port infrastructure and use tender boats to transport passengers;
• The potential limits to the operation and extent of a cruise ship levy arising from areas of maritime policy which fall outwith devolved competence.

Day visitors

4.4.7 Day visitors also have an impact on local environments and use many services and amenities which are also used by overnight visitors. Under the proposals in the Visitor Levy Bill, day visitors will not be liable to pay a levy.

4.4.8 Whilst there are strong arguments in favour of taxing day visitors should a local authority introduce a levy on overnight visitors, it is difficult to envisage how such a levy could actually be applied and collected in a practical manner and in a way that distinguished between local residents and visitors. The taxable event for the visitor levy is the sale of commercial accommodation which excludes most local residents (except in circumstances where a local resident uses accommodation in their own area). It is less clear how a taxable event for a day visitor tax could be defined to effectively target visitors alone.

4.4.9 It has been suggested that, in some areas, the taxable event for a levy on day visitors could be entering a particular area via a limited number of entry points, which is likely to be more feasible in some contexts that others. This is done in some other countries for example, payments to enter National Parks. As noted in the accompanying Islands Impact Assessment, it was noted through engagement with island communities that islands have limited points of entry, and it was suggested that it is therefore more possible to identify and charge day visitors arriving on an island (e.g., by taxing ferry passengers). Other alternatives suggested in the National Discussion included applying a tax to goods and services used by day visitors such as restaurants or taxis.

4.4.10 In all such circumstances, the administrative challenge would be to distinguish day visitors from overnight visitors and local residents in a manner that was not overly bureaucratic (i.e., checks of ID and proof of residency requirements for local residents to be exempt from additional charges).

Campervans

4.4.11 Similar to day visitors, the 'taxable event' underpinning the visitor levy is the purchase of commercial accommodation. Visitors that use mobile campervans and wild campers who do not pay for a pitch at a caravan or campsite do not engage in a taxable event for the purposes of the Bill. As in the example of day visitors, another taxable event would have to be defined to capture these types of visitors. It was raised in the consultation that mobile campervans may cause particular issues around congestion and pollution in some areas at peak times. However, it is worth noting that a majority (60%) of respondents to the consultation did not think a levy could be placed on wild or rough camping, including motorhomes and campervans. In terms of visitor management, it should be noted that there are a range of other powers that local authorities already have to deal with inconsiderate parking or camping (such as byelaws for restricting parking and parking fees). These powers may tackle the underlying issues with campervans more effectively than expanding the scope of a visitor levy. Revenue from a visitor levy applied to overnight visitors could fund improved enforcement of these existing restrictions in areas where this has been identified as an issue. Work on assessing and managing the use of campervans is also being undertaken through VisitScotland's Visitor Management Strategy and its working group on motorhomes.

4.5 Option 1: Do Nothing

4.5.1 Under the 'Do Nothing' option, we have identified the following costs and benefits for identified sectors and groups. These costs are described qualitatively.

4.5.2 As no new levy would be in operation, accommodation providers would not be incurring any additional compliance costs associated with collecting and remitting a levy to a local authority. Accommodation providers would also not be required to either absorb or pass-on the impact of a visitor levy on accommodation providers, meaning their revenues will not be at risk of being negatively affected by its introduction.

4.5.3 Visitors would not have to pay an additional levy to stay overnight in

commercial accommodation. There will also be no confusion to visitors who may face a visitor levy in one local authority area and not in another one. Visitors would not benefit from any additional investment by the local authorities in public goods or other projects funded by revenues from a visitor levy which may have otherwise had direct or indirect benefits for visitors. However, there would also be no potential reduction in visitor spending arising from any negative behavioural response to higher accommodation prices.

4.5.4 As there is no risk of a negative response in visitor behaviour due to a new visitor levy, the wider business community would be unaffected under this option.

4.5.5 Local authorities would not incur costs arising from consultation and engagement on a levy, set-up administrative costs, on-going operating costs, or costs associated with monitoring and compliance (though it should be noted that ongoing costs from administering a visitor levy could be taken from the revenue the levy would raise). However, some local authorities may continue to face challenges to maintain sufficient funding to respond to pressures arising from high numbers of visitors and to provide the infrastructure expected by visitors to their area were no legislation to be put in place. Local authorities would also not benefit from having increased fiscal autonomy in being able to introduce a new tax.

4.5.6 Pressure on provision of funding in some local authorities could lead to challenges in maintaining the quality and provision of public amenities. This is potentially detrimental to residents in some parts of local authorities experiencing high numbers of visitors, and to the experience of visitors to these areas.

4.6 Option 2: Non-Regulatory Option (Business Improvement Districts)

4.6.1 If a Visitor Levy Bill is not introduced, it would mean local authorities that would otherwise have sought to introduce a visitor levy, could potentially consider alternative options within existing legislative frameworks to raise additional revenues directly or indirectly from visitors to support the local visitor economy.

4.6.2 As set out in the BRIA guidance, a non-regulatory option has been considered in this assessment. The most appropriate non-regulatory alternative we have identified to using the powers of the Visitor Levy Bill, would be for local authorities to work in partnership with accommodation providers in their area and establish a Tourism or Accommodation focussed Business Improvement District (BID). This section of the BRIA considers the costs and benefits of this BID approach. It is recognised that a number of voluntary options for raising revenues from visitors for specific local projects could also be considered by local authorities and businesses. A number of examples of such schemes are evident, particularly those with a conservation focus, such as the 'Big Tree country scheme' in Perth and Kinross.^[18]

4.6.3 BIDs came into force in Scotland in 2007 as a result of primary legislation in Part 9 of the Planning etc. (Scotland) Act 2006 and other secondary legislation. A Business Improvement District is a geographically defined area where businesses come together and agree to invest collectively in projects and services that the businesses believe will improve their trading environment. Those improvement projects are funded by revenues collected through an investment levy agreed to be paid by businesses (ratepayers) in the BID area. There are approximately 40 BIDs established across Scotland, some of which have a levy only on ratepayers with a business that is clearly defined as part of the local visitor economy, for example the Visit Moray Speyside BID.^[19]

4.6.4 One potential model that could be adopted in Scottish local authorities is the model that has been recently adopted in Manchester. In 2022, it was announced that a new specialist BID was to be established in Manchester – the Manchester Accommodation Business Improvement District. This followed a majority of relevant local businesses voting for the creation of the BID. Under the Manchester BID it is proposed that certain city centre hotelier businesses and serviced apartments with a Rateable Value over £75,000 pay an additional levy from 2023 to 2028 to raise additional revenue to be invested in the local visitor economy.

4.6.5 The proposed formula for determining the levy that each business pays takes into account three variables: the number of rooms/units available per night in each business, the number of nights in each calendar month and the STR^[20] published 'Manchester Average' Occupancy rate for each month less 5%.^[21] This effectively means the levy is tied to the expected (rather than actual) number of visitors per participating accommodation establishment. The proceeds from the levy would be retained by the board of the BID and could be used to support the development of the tourism and hospitality sector. Particular projects and initiatives envisaged by the BID include: high profile, tactical marketing campaigns to attract more national and international business conferences and major sporting events, developing and attracting new consumer events to the city, and improvements the city's welcome such as helping to keep the entry points to the city centre cleaner, providing hosts at railway stations and supporting hotels in ensuring secure environments for guests.

4.6.6 The Local Authority Revenue and Benefits Service of Manchester City Council will be responsible for collecting the levy and enforcement activity. The cost of these activities would be funded from the overall revenues raised from the BID. The net revenues raised from the BID levy are not passed onto the Local Authority, but are controlled by the BID board and ultimately the participating businesses. It should be noted that any new accommodation opening during the period 2023 – 2028 within the geographical boundary of the BID area, which meets the relevant criteria, will also be required to pay the BID levy.

4.6.7 As the BID model is very flexible and could take various forms it is not possible to estimate how much revenue could be raised from such an initiative if adopted in the context of a Scottish local authority. This would be up to local authorities and businesses proposing a BID to determine based on options emerging locally. We have identified costs and benefits of this non-regulatory option which are described qualitatively below.

4.6.8 We have assessed that the benefits of this non-regulatory option would be as follows.

4.6.9 Local authorities would benefit, to some degree, from the projects supported by BID funding.

4.6.10 Accommodation providers would benefit from having direct control - depending on the governance structure of the BID - over how any revenues raised through a BID are invested in the local area. This is likely to mean revenues will be effectively ringfenced to fund activities that benefit these businesses directly, such as marketing of the local area and investments in improvements to the tourism and cultural offer in terms of events.

4.6.11 The wider business community (excluding accommodation providers) would also benefit, to a greater or lesser extent, from the initiatives funded by the BID. Depending on the model of the BID, non-accommodation providers could also 'opt-in' and choose to also pay the levy, increasing revenues and providing more funding for projects.

4.6.12 Visitors (both domestic and international) to local authorities where a local BID has been implemented could benefit directly from investments made by the BID board to attract and retain visitors in the future. This could be through a variety of activities such as improving visitor access to up-to-date and accurate information about the local area, setting up or increasing the number of local 'tourism ambassadors' to enhance the visitor experience or taking steps to increase the number of organised events, or enhance existing events.

4.6.13 Residents of local authorities: would benefit, to some degree, from the projects supported by BID funding. However, it is likely that projects will be geared to improving services and the experiences of visitors with the extent of potential spillover benefits to residents of local authorities unknown. There may be some local job creation for residents as a successful BID is likely to need to hire staff to run its functions, although the overall effect on employment is likely to be negligible.

4.6.14 Scottish Government: the principle of Business Improvement Districts has been supported by the Scottish Government since their inception in 2007. It should be noted, unlike Option 3, there is certainty that collection of the BID levy by the local authority also falls outside the scope of VAT as the BID levy would be a statutory levy which is no different to the collection of Non-Domestic Rates,^[22] therefore the issue of interaction of this policy with VAT does not arise.

4.6.15 The costs of the non-regulatory option in this context would be as follows.

4.6.16 Local authorities would not have a new tax raising power to raise revenues in their areas to invest in the local visitor economy. Any revenues raised through an alternative BID model are effectively fully retained by the BID board. This means there is a limited role for elected councillors to exercise influence over priorities for investment in their local areas (although local authorities may exercise a veto in some circumstances). Therefore, as an option it fails to meet a key objective of the Visitor Levy Bill to strengthen local democracy.

4.6.17 The BID model also has a particular disadvantage from the point of view of a local authority in that it requires to be renewed through a vote of participating members every five years. BIDs therefore have the potential to be discontinued and in responses to the consultation, local authorities have suggested it therefore could not be considered a secure source of revenue.

4.6.18 It should be noted, local authorities would not incur any net administration costs under this option. Any costs arising from administrative activities associated with the collection of the levy and enforcement action would be recovered directly from the BID revenue. Costs are also likely to be lower relative to option 3 due to the BID levy being based on fixed parameters known to the local authority (such as Rateable Value) and therefore would be simpler to collect.

4.6.19 Accommodation providers involved in a BID may benefit from funding of additional activities to improve the visitor economy under this option. However, there are additional costs to consider with this option compared to the 'Do Nothing' option.

4.6.20 Accommodation providers would also be contributors to the BID, paying an additional levy which is likely to be based on the rateable value of the property. Accommodation providers would have to choose whether to pass on the additional cost onto visitors in terms of higher prices and, depending on the scale, this could affect future visitor demand (see Annex C). This would be mitigated to a certain extent as the businesses themselves, through the BID board, would be ultimately responsible for setting the levy rate and would be cognisant of the scale of these costs when weighted against the benefits of funding projects locally.

4.6.21 Although it would depend on the specific BID proposal, following the Manchester model set out above, it is not guaranteed that all accommodation providers in an area would contribute to the BID (i.e., those businesses with a very small rateable values). Indeed, even if all non-domestic ratepayers offering accommodation in an area were included in a BID proposal, this would not capture those businesses or individuals/sole traders providing accommodation in properties registered for Council Tax. Properties registered for council tax may include some short-term lets, student accommodation used for visitors outwith term time, and some small Bed and Breakfast operators with less than 6 bedspaces (see Annex D for data on small accommodation providers).

4.6.22 However, it should be noted accommodation providers could ultimately decide not to form a BID through the voting mechanism set out in the legislation and therefore avoid any additional costs implicit in Option 3 to introduce a visitor levy.

4.6.23 We have not identified any direct costs to the wider business community (excluding accommodation providers) arising from Option 2. It is possible that if the price of accommodation is higher due to the BID levy being reflected in the price of accommodation, then there may be an indirect impact on consumer and visitor spending as explored in more detail in Annex C.

4.6.24 Visitors (both domestic and international) that choose to stay in accommodation in local authorities where a BID is in place, could face new costs as a result of the BID levy increasing the market price for commercial accommodation, should accommodation providers choose to pass on the levy via higher prices. To note, whilst costs of this option may be similar to Option 3 (dependent on the levy rate and level of pass through), these costs will also not necessarily be transparent to visitors under Option 2 because there is no requirement for the levy to appear on bills to visitors. There is also likely to be potential for confusion for visitors if some accommodation signed up to the BID choose to pass on a levy explicitly to bills whilst others do not.

4.6.25 We have not identified any direct costs to residents of local authorities arising from Option 2.

4.6.26 Scottish Government may suffer reputational costs of not following through on its commitment to local government to introduce a new tax power for local government. If more areas chose to establish BIDS with a focus on accommodation sector, then there could be a small additional cost to SG associated with the award of seedcorn grants to those businesses looking to put a BID proposal to a ballot in future.

4.7 Option 3: Introduce a power as set out in the Visitor Levy Bill

4.7.1 This option is the preferred policy option as presented in the Bill, which sets out a framework in legislation for the future implementation of a visitor levy in areas that choose to introduce such a levy. We consider the option in detail and assess the benefits and costs to different groups.

4.7.2 Under this option, local authorities will be able to exercise a power which will allow them to introduce a visitor levy to be charged on the cost of overnight accommodation per night, excluding any additional ancillary charges such as meals, mini-bar, spa and gym facilities etc. Under the definition in the Bill, all commercially let overnight accommodation would be covered by a visitor levy if a local authority introduces the levy in their area (or part of their area), including hotels, guest houses, B&Bs, self-catering properties (including properties let on collaborative sharing platforms), and pitches on caravan and campsites. Visitors from other parts of Scotland, other parts of the UK and international visitors will be charged the levy unless a specific exemption is applied.

4.7.3 Under the Bill, a visitor levy will be calculated as a percentage of the charge for overnight accommodation and the rate set will be a decision for the relevant local authority for all or part(s) of its area.^[23] During the public consultation other bases of charge for a visitor levy were considered, and the results of our consultation found there were advantages and disadvantages to each approach. As a local tax, there is no power in the Bill for Scottish Ministers to limit the percentage rate to be applied, however we would expect local authorities to set rates that would not risk adverse economic impacts locally (see Annex C).

4.7.4 Under the Bill a local authority would introduce a visitor levy scheme, after consultation with local communities and business, and other relevant groups, and an assessment of the impact of its proposal. The visitor levy scheme would set the percentage rate to be charged, the objectives of the scheme, and what purposes the funding raised by the levy (net of administration costs) would be intended to be spent on. No exemptions to the levy are formally set out in the Visitor Levy Bill, as the Scottish Government plans to work with COSLA, industry stakeholders, and other relevant stakeholders to develop guidance for local authorities, including on exemptions.

4.7.5 Any guidance produced would have to be cognisant of minimising potential compliance complications for accommodation providers. The Bill will also give Ministers the power to create national level exemptions to a visitor levy, if necessary. Separate from any guidance, local authorities will also have the ability to create their own exemptions at a local level. Local authorities will also be able to vary the percentage charge to account for any seasonality in the local visitor economy, for example not charging it in the low season.

4.7.6 Under this option, local authorities that introduce a visitor levy will have a number of enforcement powers to assist in the efficient administration of the levy. These powers are partly based on those applying to devolved taxes in general, set out in the Revenue Scotland and Tax Powers Act 2014, and reflect practices used in other taxes such as Non-Domestic Rates. They are important in giving a local authority the powers it needs to enforce remittance of a visitor levy from an accommodation provider.

4.7.7 Under the Bill, local authorities will have discretion as to whether and when they proceed to recovery action, together with the power to remit, reduce, or waive penalties. The key enforcement measures involved are:

• a power to issue Reminder Notices, which set out that a failure to make payment of the amount due within a period of 14 days will trigger a penalty and eventually a recovery process;
• that a visitor levy is recoverable by diligence, potentially being authorised by a summary warrant;
• that for the enforcement of penalties, a penalty should be recoverable as a civil debt due to the local authority;
• a power to require production of documents or other information relevant to the visitor levy.

4.7.8 Under this option, the Bill also includes provisions for an accommodation provider to appeal against specified decisions by a local authority relating to an accommodation provider and a visitor levy (such as whether an accommodation provider has to collect and remit a visitor levy, how much it has to remit, and challenges to enforcement action). The Bill sets out an appeal process by which appeals are first made to an internal review in the local authority, with an onward appeal to the First Tier Tribunal. This reflects practice in other areas (such as the Workplace Parking Levy) and the current creation of a Local Taxation Chamber in the First Tier Tribunal.

4.7.9 The Bill requires a local authority to use the net proceeds of a visitor levy for the purposes of developing, supporting and sustaining facilities and services which are substantially for or used by those visiting the area for leisure purposes. There are a number of different areas that this could relate to and this is discussed in more detail below.

4.8 Benefits of Option 3: Introduce a power as set out in the Visitor Levy Bill

Benefits to local authorities

4.8.1 Local authorities that choose to introduce a visitor levy using the powers granted to them by the Bill would benefit from the ability to generate revenue using an additional funding source not currently available to them. The revenues would be used for the purposes of developing, supporting and sustaining facilities and services which are substantially for or used by those visiting the area for leisure purposes.

4.8.2 This would provide an opportunity to improve the visitor economy in a local area, and support delivery of the objectives set by a local authority after consultation with local stakeholders. Local authorities could also see potential reputational benefits from improving the public realm, improving visitor amenities, improving promotion and marketing of an area and/or improving destination management.

4.8.3 There are a number of examples of good practice internationally of how revenues raised from taxes on visitors can be linked to specific projects that will also have benefits for other groups identified in this BRIA. Specific examples are provided in more detail in Annex B. Revenues could potentially be split into different sections to support multiple local tourism priorities, such as initiatives to increase visitor numbers in off-season periods or support local festivals. General improvements in tourist infrastructure or supporting schemes with direct benefits for visitors (such as discounted travel or access to attractions) might also be pursued by local authorities.

4.8.4 As part of the final BRIA, the Scottish Government has assessed the potential revenues that a visitor levy could raise. These are set out in Annex A of this BRIA, with the scale of revenues dependent on the areas where the visitor levy is applied, the rate chosen by local authorities, and the sensitivity of visitor demand to changes in accommodation prices. We expect a visitor levy set at 1-2% could potentially raise between £17 million and £34 million if it was applied across all local authorities, and between £6 million and £12 million if applied in Edinburgh & the Lothians region only (the region with the largest share of visitor spending in Scotland).

4.8.5 The Bill requires local authorities to make their own assessment of the impact of a visitor levy scheme locally, and we would encourage that forecasts of revenues from a visitor levy scheme be made before implementation. Actual revenues will depend on a number of factors that are unique to each local authority, of which the behavioural response of visitors is a significant factor, as is the extent to which historic visitor spending data and demand is truly representative of the reality in the year in which a visitor levy is implemented. Any assessment would also have to take into account any exemptions to the visitor levy that may apply to a scheme, and how material these exemptions would be to potential revenues.

4.8.6 The implementation of a visitor levy will also give local authorities valuable real-time data on trends in visitor movements and spend on accommodation in their area. If supplemented by further surveys, it could improve local authority understanding of their visitor economies and the motivations of visitors to travel to their area, which would form part of ongoing monitoring and evaluation of the impact of a visitor levy.

Benefits to Visitors

4.8.7 Visitors to local authorities where a visitor levy has been implemented could benefit directly or indirectly from local authority investment in the maintenance and improvements to the public realm in the areas they are visiting, investment in broader tourism related projects or other direct benefits such as entitlements to free travel, discounts when visiting the area or enjoying festivals or local events which could be fully or part funded through the revenues raised by the visitor levy. It is ultimately at the discretion of the local authority as to whether they choose to provide visitors with direct or indirect benefits, but a direct benefit could go some-way to demonstrate the purposes of the visitor levy.

4.8.8 It should also be noted that visitors may also be more willing to pay a visitor levy if it is linked to making particular improvements to the local communities they choose to visit. As part of Booking.com's 2022 sustainable travel report, it was found that 59% of international travellers surveyed want to leave the places they visit better than when they arrived, and 25% of travellers would be willing to pay more for travel activities to ensure they are giving back to local communities.^[24] Rising levels of interest in 'voluntourism' also support this idea.

Benefits to Accommodation providers, the wider business community and residents

4.8.9 Although it should be recognised that there would be new compliance costs arising for accommodation providers in areas where a visitor levy is introduced, the sector may also indirectly benefit from the decisions of local authorities to invest in the public realm and amenities and in investments in improving the visitor economy. The wider business community, in particular businesses that rely to a large degree on visitor spending, such as leisure and recreation businesses, tour operators, bars and restaurants may also indirectly benefit from these investments.

4.8.10 We would expect accommodation providers to be consulted by local authorities in terms of setting priorities for projects or initiatives that could be funded from revenues that would have a tangible benefit for these businesses. The Scottish Tourism Alliance^[25] have suggested that revenues directed at the following priorities would yield benefits for the industry:

• Supporting the drive for net zero carbon emissions from tourism and events businesses;
• Investment in marketing and promotion of the destination;
• Supporting cities and regions to collaborate on tourism and the visitor economy;
• Creating a better, seamless visitor experience, such as supporting businesses to increase their digital presence and improve online booking;
• Investing in local tourism and hospitality skills, recruitment and retention initiatives;
• Funding of strategic destination management organisations;
• Investing in cultural or event capacity, such as local museums and galleries;
• Improving visitor attractions and landmarks;
• Improving safety and security of tourists, such as late-night transport provision for visitors and hospitality staff;
• Supporting collection of visitor data; and
• Encouraging visitor activity outside of city centres to benefit surrounding suburbs and rural communities, including better walking and cycling routes.

4.8.11 Residents in local authority areas would benefit, to some degree, from the revenues that are invested in improving local visitor economies, especially when these benefits are for goods and services used frequently by both visitors and residents. It should also be recognised that residents may derive some benefit from knowing that visitors to their area would be directly contributing revenues towards services and improvements that are funded by local authorities, which might avoid instances of community backlash against real or perceived over-tourism in certain areas.

4.9 Costs of Option 3: Introduce a power as set out in the Visitor Levy Bill

4.9.1 No costs directly arise from the Visitor Levy Bill per se as it simply creates a new discretionary power to be exercised if a local authority chooses to do so. Actual costs will only arise in cases where the power is used. In this BRIA, we have assessed the likely costs associated with a levy to different groups should a local authority introduce a visitor levy.

Costs to Local authorities

4.9.2 Local authorities that chose to introduce a visitor levy will incur a combination of consultation and decision making costs, set-up costs and ongoing administrative costs associated with the operation of a visitor levy. We expect most of these costs will be a combination on staff salary costs and IT costs, with some additional operational budget for necessary administrative functions. We expect these costs could be fully covered by the revenues generated in local authority areas that introduce a visitor levy.

4.9.3 Before making the decision to introduce a visitor levy, we expect local authorities to incur some one-off costs related to conducting a consultation on specific proposals. We would also expect one-off costs from a local authority engaging in technical level discussions on implementation with accommodation providers and other stakeholders, to establish an approach to the collection of the levy that minimises compliance costs for businesses and administrative burdens for local authorities, including in regards to the operation of any exemptions. Whilst local operability and accountability are key principles, local authorities might be able to achieve economies of scale in these costs by working collaboratively with other local authorities, for example on systems and processes. Following consultation, local authorities must also prepare and publicise a report which includes a summary of the consultation responses received and any decision made on introducing a levy and the reasons for doing so. This work may have some associated costs.

4.9.4 The intention of the Bill is that local authorities will also be required to prepare and publicise an outline of any proposed scheme; a statement about the scheme's objectives, including how the local authority intends to measure and report on those objectives; and an assessment of the impacts of their proposal in that local authority area. Local authorities may also be required to publish any impact assessments required under existing statutory duties to consult and have regard to the impact on specific groups and communities. The Bill also sets out that a local visitor levy scheme must be reviewed every three years.

4.9.5 Based on returns from local authorities, the principle decision-making costs will take the form of a public consultation which may cost the local authority between £10,000 - £20,000. It should be noted that the cost of any consultation exercise is likely to vary depending on the format of the consultation, the number of questions asked, the number of responses received, the number of face-to-face engagements undertaken and whether the consultation is undertaken in-house or is contracted out to a third party.

4.9.6 Local authorities choosing to introduce a levy will also need to establish and maintain an effective visitor levy tax registration system to identify accommodation providers that are liable to pay the visitor levy. This register we expect will be initially compiled using existing data that local authorities hold from the Non-Domestic Rates valuation roll and licensing registers of short-term let accommodation (which will be in place by the time a visitor levy could be introduced^[26]), however new processes to continually update such a register would have to be put in place.

4.9.7 Local authorities choosing to introduce a levy would need to establish new systems and processes or adapt existing systems to facilitate ongoing collation and monitoring of tax returns from accommodation providers. This will include validation and enforcement activities associated with inaccurate, late or non-returns from accommodation providers and other core operations, such as regular collection and dissemination of management information, financial reporting, handling of queries from accommodation providers and other administrative tasks.

4.9.8 In order to ensure compliance, local authorities will incur some operational costs relating to monitoring and enforcement activities, such as costs associated with issuing reminder notices, penalties and recovery action in extreme cases. Where enforcement action is needed, local authorities implementing a visitor levy may need to inspect accommodation occupancy records, accounts and other data held by accommodation providers. There will also be costs associated with the establishment and operation of review and appeal processes, and the pursuit of non-payment of liabilities should this be required. Some of these administrative costs may be offset by any income arising from penalties issued.

4.9.9 Each local authority would also have to consider the governance model for the operation of a visitor levy including the decision-making processes for how revenue raised would be used, the mechanism by which stakeholders (including accommodation providers and the wider tourism related businesses) will be consulted and to decide how the scheme is monitored and evaluated in future, including assessing any impact of the levy on visitor demand locally. Communications with visitors, accommodation providers, residents and other stakeholders would also have to be considered as part of a new on-going function for the local authority, in relation to activities such as issuing guidance on completing returns, communicating changes in requirements for accommodation providers and providing information for visitors and the general public on how revenue raised has been used.

4.9.10 Most of the costs involved with these new activities for local authorities are likely to be additional staff salary costs. A 2022 OECD report noted that, on average, staff costs accounted for around 73% of the overall cost associated with the administration of taxes across OECD countries. On average, 30% of tax administration staff worked in areas of registration, returns and payment processing services, 30% of staff worked in areas of audit, investigation and other verification activities, 10% of staff worked in debt collection activity and 30% of staff worked to deliver other functions.^[27] These figures are illustrative of the likely division of staff time between various functions, however the actual mix of new staff resource on various functions for a visitor levy will vary and depend on operational decisions of the local authority choosing to introduce a visitor levy.

4.9.11 Finally, in addition to staff costs, the other significant item of costs for local authorities is likely to be costs associated with the maintenance of any IT systems to administer the levy, the costs of which will in part depend on the degree to which existing local authority IT systems can be used. Other operational budget costs associated with all visitor levy administration activities will also likely be required to cover other expenses such as mail costs and travel expenses (for instance if staff are carrying out any inspections of business properties needed for enforcement).

4.9.12 Given the lack of practical experience within local authorities in the UK of operating similar taxes it has been challenging to accurately assess and quantify the potential scale of these new administrative costs to local authorities at the point of Bill introduction, given the dependence of such costs on the technical details of a specific scheme and the future operational decisions of local authorities.

4.9.13 Scottish Government officials have discussed these matters with officials from other jurisdictions in Europe and Canada who have shared practical examples of the resources required to collect visitor levy type taxes in other contexts. There is also some limited published evidence from the operation of a new local tax (the workplace parking levy in Nottingham) which could offer insight to the likely scale of costs associated with operating a visitor levy, given the potential similarity in some of the administrative processes to that of a visitor levy. As part of our discussions with COSLA, Edinburgh Council has also provided indicative estimates of the potential costs associated with introducing the levy in Edinburgh. The bullets below summarise available cost information in relation to a visitor levy:

• Nottingham City council introduced a workplace parking levy in 2012. Whilst, of course, a different tax from the proposed visitor levy, it has some potential similarities in terms of aspects of administrative activities. In the four years prior to the Covid-19 pandemic, the council reported that the administrative cost of the scheme was on average £400,000 per year. This was set against revenues in 2019-20 of just under £10m per year.
• In discussions with officials involved in administering tourist taxes from Nice, Amsterdam, and Toronto, it was suggested that core staffing requirements ranged from 3 to 5 full-time equivalent members of administrative staff (further costs were not shared due to sensitivity). Assuming the average cost to a local authority of a staff member was £35,000, this would mean in a Scottish local authority context, staff costs associated with administrative activities of around £105,000 to £185,000. With other non-staff costs adding around 25% (according to evidence from the OECD), this could mean overall administrative costs of £145,000 to £240,000, with a mid-point of £190,000.
• Edinburgh City Council officials have shared with the Scottish Government initial estimates of administrative costs associated with a visitor levy of around £500,000 per year. Just over half of this was estimated to be on core operational activities, with other items of expenditure on project management in relation to governance, operations and reporting, as well as IT maintenance and a provision for additional communications. It was also noted that some efficiencies could be made in some areas of programme management and administration costs if the levy could be administered with existing IT systems.

4.9.14 We expect that some elements of set-up and on-going costs will be fixed for each local authority choosing to implement a levy (costs of consultation, procurement and maintenance of IT systems, communications costs, etc.). Other elements of administration costs are likely to be variable and depend on the size of visitor economy in each local authority, the number of accommodation providers expected to be liable to remit a tax return, and the frequency at which returns are made to the local authority (monthly, quarterly, or annually).

4.9.15 Therefore, a smaller local authority with fewer accommodation providers requiring fewer tax returns would likely have lower on-going administrative costs compared to a larger local authority with a higher number of accommodation providers with more frequent tax returns. Edinburgh is an area of Scotland that fits this later categorisation and, on that basis, we assume that the £500,000 estimate provided by Edinburgh Council is likely to be at the upper end of on-going administration costs associated with a visitor levy and may therefore not be representative of on-going administrative costs in other areas.

4.9.16 On that basis we assume that the true range of costs for a particular local authority could be between £190,000 and £500,000 per year (not adjusting for inflation). Some elements of these costs will be borne in the year(s) prior to the implementation of the levy as, for example, systems and processes are developed to allow a levy to be collected and other activities such as governance arrangements are put in place, whilst others will be on-going costs. Local authorities have estimated that set-up costs may be in the order of £60,000 to £250,000 (including consultation costs), spread over-two years prior to the introduction of the levy. For the purposes of the financial memorandum and BRIA, these are adjusted by a factor of 200% to reflect potential optimism bias in these estimates, given the large element of IT investment required.^[28]

4.9.17 It should be noted that administrative costs of the scheme will be an important consideration for local authorities as to whether in practice they use the powers within the Bill to introduce a levy in their area. We would expect local authorities to assess the cost-effectiveness of tax collection versus expected revenues, just as we would expect local authorities to assess the potential for a visitor levy to negatively impact visitor demand.

Table 2: Summary table of expected costs to a local authority associated with a visitor levy ^[29]

	Year T-2	Year T-1	Year T	Year T+1	Year T+2
Consultation and Decision-making	£10,000 - £20,000				<£1,000
Set-up cost	£50,000 - £230,000	£50,000 - £230,000
Administration Costs			£190,000 - £500,000	£190,000 - £500,000	£190,000 - £500,000
Total	£60,000 - £250,000	£50,000 - £230,000	£190,000 - £500,000	£190,000 - £500,000	£190,000 - £500,000

* Set-up costs are assumed to be incurred over the years T-2 and T-1 prior to the implementation of a visitor levy. Due to the uncertainty around estimates, no inflation rate has been applied, but it should be noted that costs are likely to reflect inflation pressures in reality.

Costs to Accommodation Providers

4.9.18 Businesses and other organisations that provide accommodation on a commercial basis (accommodation providers) located in areas where a visitor levy is introduced are likely to face three main sources of additional costs. The first source of costs will be any initial set-up costs required to comply with a new visitor levy, and the second will be ongoing administrative and compliance costs, including making visitors aware of levy requirements. Both of these are covered explicitly in this BRIA and in more detail in Annex E. The third source of potential costs is related to potential changes in visitor behaviour which may negatively impact profitability and competitiveness. This is explored in more detail in Annex C and the Scottish Firms Impact Assessment (section 6.1).

4.9.19 It is worth stating that the actual compliance costs that could arise for a particular business will depend on a combination of factors that will be potentially unique to each business. Set-up and on-going compliance costs for accommodation providers may also be influenced by the decisions of local authorities in the implementation of the visitor levy locally, such as policy decisions around exemptions.

4.9.20 To assess and attempt to quantify the compliance costs to accommodation providers associated with the Visitor Levy Bill, Scottish Government analysts engaged with a number of accommodation providers ahead of the introduction of the Bill and identified the activities listed below as significant new burdens of a visitor levy.

4.9.21 For initial set-up costs, prior to the introduction of the visitor levy, the following costs were identified:

1. Costs associated with undertaking or commissioning necessary updates or changes to existing property management systems (PMS) in order to collect, record and remit visitor levy revenue accurately in accordance with local authority requirements.

2. Costs associated with training existing staff on new systems or changes that have been made to existing systems.

3. Costs associated with testing or piloting any new systems before a visitor levy is required to be collected.

4. Costs associated with renegotiating existing contracts with third parties (such as third-party booking platforms or online travel agents) where a commission is based on the price of accommodation in order to exclude the cost of a visitor levy.

4.9.22 For on-going compliance activities, the following activities were identified:

1. Costs associated with preparing regular remittance tax returns to the local authority.

2. Costs associated with performing reconciliation exercises associated with tax returns and due diligence checks to ensure, for example, the correct visitor levy rate is applied to invoices.

3. Costs associated with engaging in additional record keeping for the purposes of evidencing where a local exemption to the visitor levy was applied.

4. Costs associated with explaining to customers why a visitor levy has been added to their accommodation bill.

5. Costs associated with any increase in fees charged by property management system providers that supply technical solutions to businesses in order to correctly calculate the amount of visitor levy due from accommodation sales.

4.9.23 Given the degree of variation in potential costs across different businesses within the accommodation sector and the uncertainty with regard to which local authority areas might ultimately introduce a visitor levy, it is not possible to provide definitive estimates of the overall compliance costs faced by businesses in Scotland arising from the exercise of powers within the Bill.

4.9.24 The approach taken in this BRIA is therefore to devise indicative and hypothetical scenarios for the time and cost involved for a typical accommodation provider in terms of both set-up and ongoing compliance costs associated with a visitor levy. The cost ranges provided are based on assumptions drawn from synthesising information made available by accommodation providers, but it should be recognised that the costs stated are not necessarily representative of all businesses with those characteristics, and actual costs for a particular business may lie outside these bounds for a range of reasons.

4.9.25 Scenarios A and B below are designed to reflect two possible extremes in terms of the type of accommodation provider that may need to comply with a visitor levy. More detail on the methodology used is provided in Annex E.

4.9.26 Scenario A is a small to medium-sized hotel with an annual turnover of £1m - £5m per year, that employs around 50 employees in a variety of roles.

4.9.27 Based on engagement with stakeholders whose business structure broadly matched the description above, we assume that activities identified as set-up costs could absorb between 10 and 30 working days of time for various people employed by the business. After calculating the average salary of the staff which stakeholders indicated would be involved in these activities, we estimate the average set-up costs for this hypothetical business would be between £2,000 and £7,000.

4.9.28 It was also recognised that subscription fees to a property management system (PMS) supplier may rise, or a one-off payment may be charged to cover additional development costs. We assume that a one-off fee is charged by a PMS supplier that may be between £1,000 and £3,000, based on a previous costs reportedly charged for VAT changes.

4.9.29 In the longer-term, based on the time taken to complete VAT returns, we estimate annual on-going compliance costs associated with a visitor levy return for a typical business would be around £300 - £400 per year. Table 3 summarises these costs, with 'Year T' being the first year in which a local authority implements a visitor levy.

Table 3: Hypothetical compliance costs for a typical small to medium-sized accommodation provider

A small hotel with a turnover between £1m and £5m and around 50 employees	Year T-1	Year T	Year T+1	Year T+2
Set-up costs (excluding one off increase in PMS fee)	(£2,000 to £7,000)
Set-up cost (one off charge for PMS development)	(£1000 to £3,000)
On-going costs		(£300 to £400)	(£300 to £400)	(£300 to £400)
Total compliance cost to a typical small to medium size hotel	(£3,000 to £10,000)	(£300 to £400)	(£300 to £400)	(£300 to £400)

*Note 'Year T' is the year in which a local authority implements a visitor levy, costs are based on the assumptions set out above and are not necessarily representative of actual costs given variations in cost structures and contractual arrangements between individual businesses and third parties. Cost estimates are not adjusted for inflation and are rounded to the nearest £50.

4.9.30 The second scenario is based on a self-employed person that operates a small self-catering or B&B accommodation business. We assume that the business does not generate a sufficient turnover to pay VAT (i.e., turnover is less than £85,000 per year). Based on published information about small operators in the sector, we assume these businesses would typically generate profits of between £12,000 and £50,000 per year.^[30]

4.9.31 Based on engagement with stakeholders whose business structure broadly matched the description above, we assume that set-up costs could absorb between 2 and 5 working days of time of the business owner ahead of the introduction of a visitor levy on various tasks as described above.

4.9.32 In addition to lost working days, we assume that there are likely to be some additional charges related to necessary changes to property management systems used by these businesses. In our engagement with stakeholders, typical annual subscription fees of between £500 and £2,000 per year were reported and we assume that there could be an uplift in these charges of 15%-25% to cover the costs of any development required by these companies to facilitate collection of a visitor levy. Ultimately it will be a commercial decision for PMS companies to reflect any development costs in subscription fees charged to accommodation providers.

4.9.33 In the longer-term, based on the average time reportedly taken to complete a VAT return per year (13.5 hours in total assuming 4 returns per year), we estimate annual on-going compliance costs associated with a visitor levy return for a typical business would be around £100 - £350 per year.

Table 4: Hypothetical compliance costs for a typical micro business in the accommodation sector

A micro business with a turnover of less than £85,000	Year T-1	Year T	Year T+1	Year T+2
Set-up costs	(£150 to £1,100)
On-going costs (excluding a recuring increase in PMS fees)		(£100 to £350)	(£100 to £350)	(£100 to £350)
On-going costs (recuring increase in PMS fees)		(£100 to £500)	(£100 to £500)	(£100 to £500)
Total compliance cost to a typical micro accommodation business	(£150 to £1,100)	(£200 to £850)	(£200 to £850)	(£200 to £850)

*Note 'Year T' is the year in which a local authority implements a visitor levy, costs are based on the assumptions set out above and are not necessarily representative of actual costs given variations in cost structures and contractual arrangements between individual businesses and third parties. Costs are not adjusted for inflation and are rounded to the nearest £50.

Visitors, residents, and the wider business community

4.9.34 Under Option 3 visitors paying for overnight accommodation in local authorities where a levy is implemented could face new costs as a result of a visitor levy increasing the price paid for commercial accommodation, should accommodation providers choose to pass on the levy. It is not necessarily the case that accommodation providers will choose to pass on this cost directly to visitors (see discussion in Annex C), although it is more likely that the extent of any change in prices will also be influenced by the decisions of local authorities in setting the visitor levy rate.

4.9.35 Higher prices for visitors could lead to changes in visitor behaviour, such as less visitor spending in the local economy, reductions in the number of nights visitors choose to stay in the local authority and, in extreme cases, a sufficiently high rate of visitor levy could lead to visitors choosing alternative destinations to visit. This will also have impacts for businesses that rely on tourism and for residents employed in tourism related industries.

4.9.36 A 2018 survey of visitors to Edinburgh conducted by STR^[31] found that, when asked what effect a £1-£2 visitor levy would have on their overnight stays, the vast majority (75%) of visitors to Edinburgh said that the tax would have no effect on their stay. This finding is in line with evidence from other cities which suggests that visitor numbers to destinations that have introduced a visitor levy did not see decreases in visitor activity (see Annex B). However, 15% of respondents to the survey did claim they would change their behaviour by either spending less on accommodation or spending less elsewhere on their trip. Only 2% of travellers said they would not travel to Edinburgh at all if the tax was applied.

4.9.37 The wider business community therefore may also face costs due to potential behavioural change from visitors reacting to higher prices. The wider business community could be negatively affected through reduced levels of turnover, should the visitor levy result in reduced ancillary spending by visitors, reduced duration of holidays and other trips or reduced visitor numbers generally. Residents, especially in areas with a high dependence on tourism for employment could also be negatively affected if falls in visitor spend fed through to less employment locally.

4.9.38 It should be noted that, at a Scotland level, some of these potential impacts may in part be displacement if for example visitors chose to spend money in other areas of Scotland where a visitor levy is not introduced. In addition, revenues from a visitor levy will also be used to develop, support and sustain facilities and services which are substantially for or used by those visiting the area for leisure purposes. There is some potential that this will offset any negative effects on visitor behaviour (see Annex C for a discussion of this).

4.9.39 It is important to note that stated preference surveys are imperfect measures of how visitors may behave in reality to an increase in prices. There is a lack of revealed preference evidence in relation to visitor behavioural changes to increases in prices of accommodation. The particular survey conducted by STR was also based on a presumption of a flat £1-£2 tax, not a percentage model as set out in the Bill. We might expect that those visitors that are particularly price sensitive will choose to stay in cheaper accommodation, and therefore under a percentage model, the implied increase in prices for these visitors will be necessarily moderated. Some evidence suggests that one group of travellers that are particularly price sensitive are single young people aged under 35, which was a finding also confirmed in the STR study. More information on the assessed impact of the Visitor Levy Bill on children and young people can be found in the Child Rights and Wellbeing Impact Assessment.

4.9.40 Table 5 sets out the comparative tax paid per person per night for different groups of travellers which could have different behavioural responses to price increases. Families using low-cost accommodation (such as a caravan site) could pay as little as 10 pence per person per night with a 1% visitor levy, whilst a couple visiting Edinburgh at peak season staying in a hotel may pay up to £2 per person per night. This reflects both advantages in progressivity, and that a percentage charge approach means a visitor levy is potentially less distorting to behaviour compared to a flat tax where each visitor would pay the same amount in visitor levy.

Table 5: Hypothetical examples of overnight stays and visitor levy payable across different accommodation types

Scenario	Description	Price	Total taxable cost	Total Visitor Levy Payable (1%)
A	A couple stay in Edinburgh for a long weekend (3 nights) in August and stay in an average priced hotel	£220 per room per night	£660	£6.60
B	A single person stays 2 nights in a hotel in an average priced hotel in Aberdeen in November	£80 per room per night	£160	£1.60
C	Two couples visit Edinburgh for a short-break (4 nights) using an Airbnb rental (entire home)	£170 per property per night	£680	£6.80
D	A group of 4 backpackers travel to the Highlands for a long-weekend (3 nights) and use hostel accommodation on their trip	£30 per bedspace per person	£360	£3.60
E	A family of five (2 adults and 3 children) for a 1 week holiday in April in self-catering accommodation in Argyll & Bute	£775 for a one week booking	£775	£7.75
F	A family of four (2 adults and 2 children) for a 1 week summer holiday at a caravan site	£40 per pitch per night	£280	£2.80

4.9.41 Under Option 3 residents of the local authority choosing to introduce a visitor levy are unlikely to experience any direct costs if the price of local accommodation increases unless they were staying in commercially let accommodation rather than their own home. It may be the case that residents who choose to purchase accommodation in a local authority area in which they are also resident would pay a higher price for that accommodation due to the introduction of a visitor levy in their area. This could arise in instances where residents cannot live in their current home because of damage (flooding or fire damage for instance). It is up to the local authority to determine whether cases like this may be subject to a local exemption, and how such an exemption would operate.

4.9.42 The direct financial implications of the Bill on the Scottish Government are minimal. As the decision to introduce a visitor levy is discretionary, the Scottish Government will not provide funding to local authorities to meet any costs associated with designing, implementing or applying any visitor levy scheme. There may be some costs to the Scottish Government and its agencies – for example depending on how VisitScotland might be involved - associated with developing secondary legislation or national guidance as required but these can be expected to fall within the scope of business as usual costs.

4.9.43 There may be costs associated with appeals against decisions made in respect to a visitor levy to the First-Tier Tribunal. The 2019 public consultation did not ask respondents for views on appeal fees. The Bill creates a two stage process where a local authority internal review is followed by the ability to appeal to the First-Tier Tribunal. The Bill confers regulation-making powers to Scottish Ministers to make further provision on the detailed arrangements around appeals.

4.9.44 If local authorities use the power to introduce a visitor levy, then the Scottish Government and its agencies may have additional costs if they choose to pay the levy on behalf of staff staying in overnight accommodation for official business in areas that apply a visitor levy. The increase to travel and subsistence costs for the Scottish Government will depend on the number of business trips made to areas where a levy is in place and the rate of the visitor levy applied in these areas.