Authors say tourism taxes must account for public services

In an opinion piece published by Morgunblaðið, Vilhjálmur Bjarnason and María Matthíasdóttir argue that tourism taxes should be assessed not only for their impact on businesses and visitors, but also for how they help fund infrastructure and services needed to keep destinations competitive.

The authors also warn against appeals to collective ownership in political speeches. They criticise the use of phrases such as “our sheep,” “our manuscripts” and “our energy,” saying such language can be used to promote a speaker’s private interests. They argue that shared ownership of manuscripts should not be misused to stir nationalist sentiment.

Tourism competitiveness

A destination’s competitiveness depends on its ability to increase visitor spending, attract more guests and provide an enjoyable, memorable experience, the authors write. These aims should be pursued profitably while supporting local residents’ welfare and protecting natural resources for future generations.

They say assessments of competitiveness should consider how taxes affect businesses and tourists, as well as how tax revenue supports the infrastructure and services tourism needs.

Taxes and fees

The piece distinguishes taxes from fees, defining taxes as charges on individuals and businesses that do not depend on their direct use of goods or resources. It identifies income tax and value-added tax as the largest central government taxes, and municipal tax and property tax as major local taxes.

According to the authors, consumers pay value-added tax on goods and services at the final stage of consumption, while businesses collect it for the state. Fishing companies and aluminium producers do not pay the tax on exported production because their input tax is refunded.

The authors estimate that value-added tax on services provided to foreign tourists, which they classify as exports, will bring about 70 billion krónur into the state treasury this year. They say this figure excludes income tax paid by individuals and companies on business with those tourists. The revenue is substantial even though hotel and restaurant services are subject to the lower value-added tax rate, a concession they link to European countries opening up to Eastern Europe after 1990.

Airline tickets are exempt from value-added tax, the piece says, partly because it is unclear whether the tax should be paid in an airline’s home country or where the ticket is sold. The authors add that, when international aviation cooperation took shape after the Second World War, member states of the International Civil Aviation Organization decided to make international travel a source of revenue.