Tourism industry discusses tax issues

Taxes have again come under
discussion by Caribbean tourism professionals.

Speaking at the Caribbean Tourism
Outlook Seminar in Jamaica,
Hugh Riley of the Caribbean Tourism Organisation led a discussion on barriers
to tourism growth in the region.

In the presentation, Mr. Riley said
that direct taxes on consumers affected their ability and willingness to
travel, because the taxes were reflected in the trip’s cost.

Demand, he said, plus its associated
elasticity, was a moving target as it depended on both existing prices and
consumer tastes. Another set of factors were customer preferences, incomes and
expectations.

The presentation indicated that
taxes were often governments’ primary revenue source. They therefore provide
the structure and system that organise lives, and protect livelihoods, as well
as creating the environment to generate jobs.

Industry

In the tourism industry, the taxes
could promote the same sector being taxed, subsidise activities and provide
incentives in the sector and re-distribute earnings in the sector and the
economy as a whole.

The methods of taxation, said Mr.
Riley, were either direct on the consumer through departure and ticket taxes,
direct on the providers of tourism goods and services in the form of property
and corporate taxes, or indirect taxes including VAT, sales tax and import
duties.

The reality was that when the
volume of business activity failed then the quantum of government revenue from
those sources would also fall accordingly.

Across the Caribbean
region governments employ some or all methods of taxation. However, Mr. Riley told
the audience that airline and consumer feedback had indicated that taxes on
flights originating in the Caribbean were unacceptably
high, a factor that is said to dampen demand for intra-regional travel. Taxes
on tickets in source markets were also rising.

Service charges

In the Caribbean,
explained Mr. Riley, service charges generally ranged between 10 and 15 per
cent and hotel room taxes between 6 and 20 per cent. There were also additional
taxes on food and beverages dependent on territory. Airport departure taxes are
mostly within the US$20 to $35 range and other taxes also applied dependent on
destination.

“The downside of all of these taxes
and charges is that they may, in fact, slow the revenue generating capacity of
Travel & Tourism, and also slow or completely stifle job creation.

“High taxes can have a ripple
effect on a local economy, maybe causing companies to
hold an event elsewhere or send fewer employees to a conference,” said Mr. Riley.

He gave the example of New York’s state and
local hotel taxes, which reached around 20 per cent during the 1990s. New York gained a
reputation of being overpriced and business was often diverted elsewhere. The
estimated tax loss from visitor spending was $962 million for an aimed gain of
$463.2 million of room tax. The average tax rate on NYC hotel rooms has now
dropped to 14.25 per cent.

Derided

The much-derided Air Passenger
Duty, which has vastly increased the taxes payable on Caribbean-destined
flights from the United
Kingdom, once more came under fire. Mr.
Riley quoted a Daily Telegraph article that said the new tax would penalise
British holidaymakers on a well-earned holiday rather than, for example, a
well-off business traveller flying on a private jet.

A similar tax that had been
introduced by the Netherlands
became revenue-negative and was abolished after a single year, said Mr. Riley.

The Caribbean Tourism Organisation
had several funding strategies, he said, including developing and expanding
funding sources from outside the region. International funding was 21 per cent
of all money managed by the CTO in 2009, and the intent was to increase the
level of project funding steadily over time.

The projects that would be targeted
would be training, sustainable tourism development, research and data analysis,
advocacy, energy efficiency programs, and special events.

Mr Riley indicated that the
Caribbean Tourism Development Company had a list of 22 priorities and benefits
to the region, the most important of which is to generate increased tourism
revenue for the Caribbean.

Visa issues

Following September 11, 2001, visas
had taken on increased importance as well as controversy. Mr. Riley conceded
that they provided security benefits but also said they could be a deterrent to
tourism. He called for a balance as there had been ‘an international and
domestic outcry’ when the US
tightened its visa requirements.

He reiterated the long-held idea
that a unified visa requirement and fee policy could benefit the Caribbean or unified areas of domestic space.

Fund matching

Finally, Mr. Riley’s presentation
dealt with the new United States Travel Promotion Act, new legislation that
called for overseas travel promotion. It is intended to yield $4 billion in new
economic stimulus, millions of new visitors and 40,000 new American jobs.
Projected new federal tax revenue through this would reach $320 million, reduce
the deficit by $425 million and increase revenues by $135 million over the next
ten years.

The bill would be funded by a $10
fee payable by overseas visitors to the United States, plus matching
private sector funds.

“Regardless of where we stand on
tourism taxes, the future of this industry depends upon our ability to
effectively market the Caribbean as one
region.

“[It is] the world’s most
pleasurable, most refreshing, most diverse, warm weather destination,” concluded
Mr. Riley.