Nova workboard

a blog from young economists at Nova SBE

Taxing the Tourists

With rising household income and globalization, tourism sectors across the world have experienced high growth since the early 1990’s. Expenditures from international visitors to Portugal has increased on average 6.4% per year between 1995 and 2013, contributing approximately $16B to the Portuguese economy in 2013, with global tourism expenditures increasing by approximately 6.2% per year over the same period.

Portugal is an attractive destination boasting lively cities with historic and cultural charm, warm Mediterranean climate and environmental advantages, and a unique cultural diversity all catering to a broad range of tourists. In an attempt to leverage the rising popularity of international travel to Lisbon, the municipal government has in recent years debated the introduction of a tourist tax for international visitors. Such a tax is no novelty with popular destinations including taxes on tourists overnight stays in Berlin and Barcelona, and even informal accommodation sharing sites such as Airbnb collecting and remitting overnight stay taxes to local governments in Paris and Amsterdam.

In Lisbon, collection will take the form of a €1 tax on all international visitors arriving through the city port or international airport, with a further  €1 tax per night on all tourist occupied beds for the first week of stay to be implemented next year.

From an economic point of view, a tax on tourism is an attractive revenue generating scheme for local governments. Such taxes can be used as alternative means to finance operations, maintenance or investment in the tourism sector which must compete for public resources against other goals such as health and education. The Lisbon municipal government has earmarked such funds to be reinvested in to the upkeep of historic monuments in the city and the building of a new museum. Tourism taxes in a sense export some of the burden from local residents to visitors to the city, who are primarily non-voters in the country.

This tax has not been met without controversy however with political parties asking for the tax to be revoked and fears that charging taxes on arrivals will make Lisbon less attractive and welcoming to tourists, decreasing its competitiveness among alternative European city destinations. Even recently, the tax on airport arrivals has been deemed illegal within the European Union on the basis of discriminating against non-Portuguese entering the country. In a move resembling to ease negative perceptions of this tax by locals and tourists alike the ANA Group, which manages the airport in Lisbon, has agreed to cover the head tax on arriving visitors without passing on these burdens to passengers (expected to reach €3.6 – €4.4M in revenue this year).

All said however, the state of government expenditure in Lisbon (as of 2007) is well below competing European destinations and is expected to decline. Paired with increasing visitors to the city and many new hotels opening, a tourism tax remains a viable avenue to mitigate some of the expenditure burden from the tourism and travel sector. The key is to balance tax fees with tourism services and amenities to maintain Lisbon as a competitive tourist destination.

Jacob Macdonald

Advertisements

Author: studentnovasbe

Master student in Nova Sbe

Comments are closed.