Tourism's taxing times: value added tax in Europe and Denmark

Abstract

In recent times the Business Council of the World Tourism Organisation has been concerned at the escalation in the number of tourism taxes and the rates at which tourism is taxed. There is a justifiable suspicion that governments are looking at the burgeoning tourist industry not from the rational principles of taxation, but simply as a new revenue source, particularly as foreign tourists are not voters in the destination. The tourism industry has to cope with specific taxes, such as a departure tax, and general taxation, such as value added tax (VAT). This article reviews the principles by which tourism should be taxed and focuses on the different rates of VAT in a European context. Using Denmark as a case example, a simulation exercise is carried out to examine the hotel sector's claim that a more efficient and equitable economic solution would result from cutting VAT.