Much of the talk at the Caribbean Tourism Summit that has just ended in Montego Bay in Jamaica was about tax and tourism. The debate centred on whether the ever-widening range of taxes on visitors and on travel was about to make the region’s tourism product much less competitive and how best to address both governments and the industry’s needs.
What seems to have given particular focus to the concerns of tourism industry professionals were the recent announcements by the Jamaican, Antiguan and other governments of significant increases in taxation at a time when the industry across the region is struggling to return to growth and profit. For much of the industry their frustration was that tourism, an export industry, was still treated as if it were any other domestic industry, and decisions on taxation appeared to be being taken with little understanding of the impact they might have on pricing and future demand.
That said, it is clear from a closer look at the nature of the aviation or tourism taxes being introduced across the region, that they are far from similar, aiming in some cases to address budgetary deficits and in others to finding new ways to finance tourism infrastructure.
In the case of Antigua, for instance the country’s overall airport taxes have now risen to a staggering US$93.75, up from US$63.75 per passenger. The increase in charges, which are on top of any other taxes, fuel surcharges or other levies that travellers may pay, is to help fund improvements at the island’s V C Bird International Airport and have now been built into ticket costs so that departing passengers will no longer have to pay at the airport after check-in.
Defending the decision to the Antigua Observer, the island’s Prime Minister, Baldwin Spencer, suggested that that the increase would not damage the local tourism industry and that any negative impact would not be sustained over time. This was because, he suggested, Antigua was “a destination that sells itself.“ Hoteliers, airlines and the opposition Antigua Labour Party were less sanguine, the latter describing the tax measure as a “backward initiative which is obviously going to damage our tourism product.“
In contrast, in the case of Jamaica, the change in taxation was a consequence of government’s broader discussions with the International Monetary Fund and in its detail, the result of a lengthy dialogue with the industry.
The final nature of the Jamaica’s tax measures came out of discussions convened by Minister of Tourism and Entertainment, Wykeham McNeill, after the Jamaica Hotel and Tourist Association requested a further dialogue on the previously announced tax measures.
This resulted in the revenue forecast to the IMF being maintained but the manner of the taxation’s imposition being varied so that the final outcome is to be the introduction, from the start of August, of a US$20 fee for each arriving passenger whose trip originates abroad, and from the beginning of September, an accommodation tax for each occupied room of between US$1 and US$4 per night depending on the size of the property.
Although far from comfortable with the decision, most hoteliers seem to have reluctantly accepted that the measure is for the good of the country, is a shared pain and a way out of the island’s parlous economic position.
At the Tourism Summit – organised jointly by the Caribbean Hotels and Tourism Association and the Caribbean Tourism Organisation – there was, however, a more general sense that the self-imposed impediment of taxes on visitors would mean that the region’s tourism product would lose comparative advantage. This would happen not just in relation to other destinations, but most especially, many speakers felt, in relation to the balance between land-based tourism and the cruise ships.
Governments across the region remain averse, for reasons few talk openly about, to have cruise passengers also bear the burden; so much so that such visitors, who spend negligible amounts on island compared with land-based visitors, are meant to pay head taxes sometimes as low as US$2 or US$5. The effect is that any Caribbean government now increasing the differential between what cruise-ship and land-based visitors pay, may be driving down their own tax revenue as visitors at a time of recession find it significantly cheaper to select the offshore option, the cruise ship, for visiting.
Speakers at the conference also made clear that there were other reason why taxes on visitors needed to be more carefully considered, whatever the reason for their introduction. The nature of the tourism market and its demographics were changing. Studies indicated that the lower end of feeder markets in North America and Europe had fallen off as austerity and recession wiped out disposable income.
However, the more affluent still wanted to travel to the Caribbean but had higher expectations about quality, service, cuisine and the quality of properties if they were to be paying more.
This meant that while price might not be an immediate determinant, the overall cost and quality of the offering would be rigorously compared. The danger was that if hotel margins became even tighter and their quality ceased to compare well with other destinations at a similar price, the region would be abandoned for other destinations. Some governments, in their rush for revenue, it was suggested, seemed not to recognise that for higher end hotels to compete they had to offer something better than that which more affluent visitors could experience elsewhere or at home.
Taxation in relation to tourism and aviation is challenging. Its effect goes far beyond visitors who come from the region’s main feeder markets. It can be demonstrated also to have dramatically reduced inter-Caribbean tourism and to have started to affect negatively business travel across the region.
Common sense says that there has to be a limit to what visitors or businesses will pay to travel or stay. As taxes rise on tickets and hotels, a point will come when the overall cost ceases to be acceptable. No one seems to know what this is, but declining long stay visitor numbers in some destinations, falling hotel revenues and the continuing rise of cruising and new global destinations suggest that tax and tourism is a matter that Caribbean governments need to think about in a more holistic way.
Previous columns can be found at www.caribbean-council.org
