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UHY’s study shows that a tourist in the UK pays USD19.90 in tax on a typical daily spend worth USD255, compared with European average of USD28.85. The low tax rate is due to an emergency cut in VAT, in the UK, on restaurant meals. The UK Government could keep that low tax rate in place and consider other emergency reductions in taxes on tourism to ensure that the UK tourism industry recovers swiftly once the lockdown is finally over.
UK’s low taxes on tourism ranked it 21st in UHY’s study covering 25 countries. UHY measured the tax paid on a number of everyday purchases by tourists – one night in a four-star hotel in a major tourist city (USD150), a meal for two in a restaurant (USD75) and a bottle of wine (USD30).
The UK charges significantly lower taxes on tourist spending than other major economies in the region, such as France (11.6%) and Spain (10%).
UHY’s study found that while the UK, alongside Ireland, Germany and China have been quick to make significant tax cuts to aid the tourism industry, 21 of 25 countries in the study, have not yet made any cuts. The UK’s 5% VAT rate for the leisure and hospitality sector is set to expire and return to 20% at the end of March 2021.
Tourism represents a sizeable amount of the UK economy, contributing over £145bn, which is 7.2% of GDP. London is the world’s third most popular destination, attracting over 19 million travellers last year*.
However, the Covid travel restrictions have caused a significant reduction, with an estimated 96% decrease in travellers this summer compared to last year. This has heavily impacted tourist-reliant businesses, particularly in the hospitality and leisure sectors.
UK businesses within the travel and tourism industry have had to cope with constantly changing rules and restrictions during the pandemic. The UK has been in a second lockdown, alongside most of Europe and is now entering a tiered system which still places severe restrictions on many hospitality and tourism businesses. More will need to be done to support these sectors until travel bans are lifted.
There is significant scope for central and local governments around the world to stimulate demand for tourist businesses by cutting taxes on consumption, alcohol duties and local taxes in tourist cities.
Even in the countries that have cut taxes on tourism, extensions will almost certainly be needed until the sector begins to recover. China’s zero VAT rate ends on December 31 2020. Germany has already announced that its temporary 7% VAT rate will not return to its usual 19% until July 2021. Ireland has temporarily cut its VAT rate for hospitality and tourism businesses from 13.5% to 9% until December 2021.
The tourist industry has been among those worst-hit by Covid, with restrictions on travel set to continue for at least several more months. The International Civil Aviation Authority reported in May that the pandemic is likely to have reduced air passenger numbers by 1 billion by the end of September 2020. This has caused substantial knock-on effects for sectors including hotels, restaurants and visitor attractions.
Martin Jones, Partner and Head of Hospitality and Brexit at our London office says: “The tourism industry has become an increasingly important part of the UK economy and its reassuring to see that the government has implemented tailored support to protect businesses during this turbulent period.
As the second wave of lockdowns across Europe ends, we will be approaching the key Easter and Summer periods for tourism. The UK could do more to help it through one of the most difficult periods it has ever faced.
The government should heavily consider extending the reduced VAT rate past March so that tourists coming to the UK after the second lockdown are able to benefit.
This is not only a national government issue – local and regional governments could also do more to help. Some cities levy specific taxes on hotel rooms and suspending those charges for a period would lift a little more of the burden from tourists and the hospitality industry.”
Europe (11.3%) has lower taxes than the global average on tourism. Some European countries that rely relatively heavily on their tourism industries have among the lowest tourist taxes in the study, including Spain (10%) and France (11.6%).
*2019: Business Insider
Tourism taxes in UK make up 7.8% of a tourist’s typical daily spend