How Tourism Taxes are Shaping the Hotel Industry

Governments worldwide are increasingly implementing tourism taxes at both a local and national levels. Such taxation takes many forms, but all are intended to increase government revenue and curb tourism numbers. These measures are a direct response to increasingly vocal public concerns about overtourism and its effects on local resources - particularly housing, transport and the environment.  For hotel operators, the measures bring new complexities which must be carefully navigated to remain compliant and competitive.

Post-Pandemic Rise in Tourism Taxes

The number of tourism taxes introduced in recent years in response to overtourism is notable, especially considering that the word ‘overtourism’ was only added to the Oxford Dictionary in 2018. It is likely a legacy of the coronavirus pandemic, which created pent-up demand and a sudden surge in tourism once local restrictions eased.  Some recently introduced tourism taxes are: 

• A €5 day-trip tax for visitors to Venice between April and July, starting in 2025. 
• A nightly £1.25 tax on most accommodation in Wales, proposed to start from 2027.
• A 5% levy on all overnight tourists in Edinburgh, to apply from July 2026. 
• A 12.5% nightly tourism levy in Amsterdam; a significant increase from the pre-pandemic level of 7%. 

But not all governments have opted for taxation in their efforts to address overtourism. Malaga has banned the registration of new holiday rentals in 43 districts from January 2025. Last year, Spain also introduced short-term rental regulation which imposes numerous requirements for property owners who want to list their home on platforms such as Airbnb.

Are Tourism Taxes Effective?

Theoretically, the impact of tourist taxes on end-user prices could mitigate overtourism, particularly in cost conscious segments of the market that are already struggling with the effects of inflation.   

Voices in the hospitality industry have expressed concern about tourism taxes could drive consumers to alternative destinations. The Wales Tourism Alliance warned that Wales’ tourism levy is a “disastrous decision for the industry”, citing a survey which found that 70% would consider going to another country if faced with a tourism tax. Airbnb criticised Spain’s short-term rental regulations as harming local economic growth. 

Yet, the real impact of tourism taxes on consumer behaviour remains uncertain. Despite introducing a tourism levy in 2012, Barcelona’s tourism numbers have steadily risen from 7.1 million in 2013 to 9.5 million in 2019. Moreover, economic studies indicate that the relationship between tourism taxes and visitor flow is complex. Multiple studies indicate that domestic tourism demand is affected but international tourism is not. Perhaps levies have a relatively insignificant impact on international tourists who are already budgeting to spend more and are driven by destination rather than price.

Tailoring Tourism Taxes to Local Priorities

Responding to public concerns about overtourism is a challenge for governments. Effective tourism taxes find the optimal balance between the benefits and potential negative effects which tourism brings. Where this balance lies varies between countries depending on their values: Bhutan, a country using a Gross National Happiness index which emphasises sustainability, charges mandatory sustainability tax of $100 per adult per night.

The most effective form of tourism tax, therefore, depends on the country and the particular concerns of locals effected by overtourism. In many hotspots, locals’ predominant concern is the pressure on housing. For example, last year thousands protested rising rent in Barcelona. However, it is not always clear that tourism taxes, even those focussed on short-term rental properties, such as Airbnb, will ease housing concerns – as these could be caused by other structural issues such as lack of new housing construction. 

Tourism taxes focussed on the specific problems faced by locals may be more effective. Where the major concern is the environmental effects of tourism, a tourist tax which is ring-fenced for reinvestment into sustainability measures is sensible. Such measures, such as Greece’s recently imposed Climate Crisis Resilience Fee, may be a good method to ensure that the environment is protected and can be enjoyed by locals and tourists alike for years to come. 

In other destinations, day-trippers, rather than overnight tourists, are the major concern. Day-trippers typically use local resources whilst contributing little to the local economy. Destinations loved by day-trippers may impose a day-tripper tax like the one imposed in Venice, where only half of the visitors stay overnight. 

Where governments see a need for imposing hotel taxes, a sliding scale of tourism tax depending on the hotel’s star-rating may be most effective and equitable. For example, in Paris the tourism tax increases as the star-rating of the hotels increases, as is the case with Greece’s Clime Crisis Resilience Fee. In Barcelona, the tourism tax is only applied to those staying at four- or five-star hotels, with five-star hotel stays incurring the highest rates. The rationale is that wealthier guests staying at higher-end accommodations will be least deterred by such taxes.

How Should Hotel Businesses Respond?

Hotels can proactively adopt strategies which not only mitigate the impacts of tourism taxes but also foster positive relationships with both locals and travellers. Examples of such opportunities include strengthening partnerships with local businesses, promoting environmentally sustainable initiatives and considering local sentiments around overtourism when planning hotel developments. 

The hospitality sector should also proactively review the effect of tourism taxes from a compliance perspective. Customer booking platforms is one example - particularly in the UK, considering the introduction of the Digital Markets, Competition and Consumers Act 2024 (“DMCCA”). The DMCCA aims to ban hidden fees by introducing new provisions around drip pricing. Under the act, businesses cannot present a fixed price which does not incorporate all mandatory fixed fees, such as tourism taxes. The DMCCA is just one consideration. More widely, hotels and online travel portals will need to closely consider their legal duties as legislation and tourism taxes interact and evolve. 

Authors: Charlotte Getz & Matthew Vance

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