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Tourism Taxes – The Global Context for a New Zealand discussion

1 March 2021

Tourism Taxes – The Global Context for a NZ discussion

In 2021, the New Zealand tourism industry is striving to recover from its greatest ever crisis and contemplating the revitalisation of tourism – ‘building back better’. That discussion leads to contemplation of how to fund the investments that are needed for the visitor economy to thrive and deliver its benefits in a fair and equitable way. Taxes are not the only tool but suggestions for tax changes are inevitable. The danger is a division into ‘for’ and ‘against’ camps. The discussion needs to be mature and take place informed by the global context.   

Definition of Tourism Taxes

Taxes, rates, fees or levies imposed by local, state or national governments, on visitors or businesses providing visitor services.

Current Roles for Tourism Taxes around the world

Revenue: In many countries, tourism taxes have become a core component of income for national, state or city governments. They often started off funding tourism-related activities only but in many cases are now absorbed into general funds.

Regulation: Tourism taxes can be used to incentivise or discourage certain behaviour. For example, variable charges can influence seasonality and regional dispersal, or where certain activities take place. Taxes intended to regulate demand have become more prevalent in recent years.

Relief: In response to the impacts of the COVID-19 pandemic, a number of countries have re-directed existing tourism taxes into business relief packages.

Regional Marketing: Tourism taxes in North America in particular are commonly used to fund the local Destination Marketing Organisation (DMO).

Research: There is discussion in many countries about using tourism taxes to fund research, development and innovation, to assist in “building back better”.

Regeneration: An increasing number of destinations (including New Zealand through the IVL) are using tourism taxes to protect, restore and enhance communities and the natural environment.

Types of Tourism Taxes

While there are a diverse range of tourism taxes imposed around the world the most  common can be grouped into three general categories:

  1. Accommodation: Charges based on number of beds or occupancy
  2. Goods and Services:  Charges on a wider range of tourism services via GST/VAT and sales taxes
  3. Transport: Fees applied usually at the border.

NB: As an economic activity, general taxes such as company tax, personal tax and fuel tax are also imposed on tourism. 

1. Accommodation (Bed Taxes)

An accommodation charge is common across USA, Canada and Europe (Britain and Scandinavia being exceptions).

In the USA, the median bed tax rate in the largest 100 cities is 15%. In the 21 European countries with a bed tax, the rate is typically much lower, at between 3-8% and there are commonly rebate and exemption schemes.

Bed taxes are a common funding mechanism for DMOs, convention and visitor bureaus, although the link is often in-direct, with the tax part of a general revenue collection by the city, regional or national government, which in turn provides annual funding to the DMO or bureau.

Bed taxes are increasingly being collected from the short-term rental/peer-to-peer accommodation sector. For example, Airbnb is collecting taxes for authorities in France, Germany, Italy, Lithuania, Netherlands, Portugal and Switzerland.

2. Goods and Services  (VAT and Sales Taxes)

Bed tax revenue is dwarfed by the Value-Added Tax (in Europe and Canada) and Sales tax (in the USA) paid by visitors. However, a very small portion of VAT or Sales tax is directly reinvested back in tourism.

The NZ Productivity Commission found that “International tourists pay a large amount to central government in the form of GST… far more than what is needed to cover the costs international tourists do not already [directly] pay for”.

In Europe, most countries apply a lower VAT on tourism-related activities. Removal of VAT is often used to attract conferences and events.

Many countries offer tax refund schemes for international visitors, but these are very limited and only have a tiny off-setting impact.

Tourism and international education are essentially the only export industries where the consumer of the export product is taxed by the country providing the product.

3. Transport (Border taxes and vehicle levies)

There is a complex range of fees, levies and taxes applied to transportation, mostly notably on air travel and cruise passengers but also on rental vehicles (40 USA States levy taxes on rental vehicles). With few exceptions, border taxes are not reinvested in the visitor economy but go into general government funds.

In Europe, a number of countries have added environmental taxes to airline passenger fees to address climate change concerns.

New Zealand is the only country in the world with a border tax (IVL) that specifically targets international visitors and excludes local travellers (it also excludes Australians and Pacific Islanders).

Principals for well-designed tourism taxes

1. A proper understanding of the costs and benefits of tourism

Too often, tourism taxes are imposed to fill a revenue shortfall or in response to a perceived issue that has not been fully investigated to confirm its validity. The first task is to clearly identify the overall impact of visitors on a community, region or country. What are the real costs and the benefits and how do these fall? Where might intervention be justified to address an imbalance? What are the actual investment needs and how might these be best funded?

2. A proper understanding of the impact of a new tourism tax

Data and evaluation of the actual impact of tourism taxes is surprisingly limited. There is theoretical and sporadic evidence that a destination can experience a negative impact on demand when a new tax is imposed. There is also potential benefit from reducing taxes. According to a PWC report on European tourism taxes, “empirical evidence suggests a strong case for reduced taxes on tourists in order to improve the competitiveness of tourist destinations and support the local tourism sector”.

It is very difficult to isolate the impact of taxes from other factors impacting on visitor flows. There is a need to look at the combined tax burden on the visitor industry, rather than considering the new tax proposal in isolation. There is also very little ongoing analysis of the impact of a tourism tax after it has been introduced.

3. Ring-fenced for specific tourism-related purposes

Tourism tax revenues must be reinvested in tourism-related services and facilities that contribute to an overall agreed vision for a sustainable tourism industry. Spending that directly or indirectly improves the tourism product (including infrastructure, events, promotion, experience, preservation) will have a positive impact on demand, increasing tax revenues further and creating a self-reinforcing cycle.

4. Genuine engagement with host communities and industry

Unsurprisingly, reaction to new tax proposals around the world is mixed. Public debate is essential. Where taxes are ring-fenced for tourism or environmental purposes and have been widely consulted on prior to implementation, communities will likely be in support. True engagement with affected businesses will assist industry buy-in and help ensure the tax when introduced is fit-for-purpose.

5. Clear communication with the visitor

Taxes should be clear, obvious and transparent to those paying the tax. This is a principle for all taxes but especially relevant for revenues raised from international visitors who have no political representation in how the taxes are created or applied. Acceptance of the need to pay is higher when the visitor knows their contribution is going to be spent on something meaningful. A well-designed and communicated tax can be successfully used as a marketing tool.

6. Compliance assistance for businesses

Businesses need to be properly assisted when required to become a revenue collector for government. Taxes that are simple and consistent in their application with low compliance costs are more likely to be supported. To ensure compliance and efficiency, it may be necessary to provide free advice and training, new technology platforms, and reimbursement for the costs of collection.

7. Devolved decision-making

Taxes collected from tourism-related activity in a destination should be spent in a just and effective manner to achieve agreed long-term goals. Local representation in the assessment of projects and distribution of funds is essential, adding to the legitimacy of the tax and the buy-in of the host community.

8. Flexibility to adapt to changing circumstances

Tourism taxes are seldom designed to be responsive to a future crisis. Instead, they are often lowered or suspended as an emergency measure, but this can have wider implications for the services and facilities that were being funded by the tax. Any tax should also be reviewed (within 3-5 years) to confirm whether it is achieving the stated purpose.

9. Fair and reasonable

As identified by the 2016 McKinsey Report, Addressing New Zealand’s most pressing local tourism infrastructure needs, new funding mechanisms should only be considered when existing funding mechanisms have proven to be insufficient, and should meet four basic criteria:

  1. Adequacy – the ability to meet the funding requirements
  2. Feasibility - the ease of implementation
  3. Equity – a clear link between the payer and user
  4. Efficiency – reasonable and non-distortionary costs.


Tourism taxes are a hotly disputed topic around the world and New Zealand is no exception. There have been frequent local and national tourism tax proposals over the past decades. Many have been rejected, but recent additions have included the Stewart Island Visitor Levy (2013); Border Clearance Levy (2016); Auckland Accommodation Provider Targeted Rate (2018) and the International Visitor Levy (2019). (NB. Due to the pandemic, only the Stewart Island Levy is currently operating as intended).

A poorly designed tourism tax has a negative impact on economic activity and jobs and hurts a destination’s competitiveness. The NZ Productivity Commission, in assessing numerous concepts for local accommodation levies, found that “given the modest funding shortfall, and the significant implementation and administration costs, introducing new tools may not produce a net benefit”.

A well-designed tourism tax can be a practical and meaningful tool in the sustainable management of a destination. New Zealand’s International Visitor Levy is arguably such an example; however, it has presently been rendered ineffective by the closure of borders.

In light of the COVID-19 Pandemic and the widespread agreement across government, industry and community that New Zealand wishes to rebuild a more resilient and balanced visitor economy, it is legitimate and necessary to again consider the place of tourism taxes.

The Ministry of Business, Innovation and Employment’s Briefing to the Incoming Minister of Tourism identifies a greater use of pricing (which includes user charges as well as taxes and levies) “could be used to better capture the full cost of visitors’ activities as close to the point of use as possible” and this pricing lever “would most likely make the most meaningful, sustainable and systemic difference to the future of sustainable tourism in New Zealand.”

However, any investigation of the burden imposed by visitor activity that could be rectified by the imposition of a new tax, must also take fully into account the economic, social, environmental and cultural benefits provided by those same visitors.

What is required is a fully developed understanding of the impacts of tourism taxes, not just in terms of economic wellbeing but also the contribution to achieving desired social, environmental and cultural outcomes and the overall quality of life for the destination.

Chris Roberts
Chief Executive

Primary Sources:

  • ‘Tourism Taxes by Design’, Group NAO/Global Destination Sustainability Movement/European Tourism Association, November 2020
  • ‘Briefing for Incoming Minister of Tourism’, Ministry of Business, Innovation and Employment, November 2020
  • ‘Funding Futures’, Miles Partnership/Civitas/Tourism Economics, August 2020
  • ‘Local Government funding and financing’, NZ Productivity Commission, November 2019.
  • ‘The Impact of Taxes on the Competitiveness of European Tourism’, PricewaterhouseCoopers/European Commission, October 2017.
  • ‘Addressing New Zealand’s most pressing local tourism infrastructure needs’, McKinsey, November 2016.

Thanks to our strategic partners

Thanks to our strategic partners

Thanks to our strategic partners