‘Accommodation tax’ for tourists proposed by Tax and Welfare Commission

Tourists would be hit with an extra “accommodation tax” levied on them for every night they spend in the country, under proposals from the Tax and Welfare Commission.

The unpublished proposal, which has been sent to the Department of Finance, would see an extra charge on tourists and other visitors to ensure they pay towards the provision of services they use while here but don’t pay for.

The recommendation is likely to be met with a strong backlash from the hospitality industry, with Ireland already among the more expensive European destinations for tourists.

However, the commission’s report argues that similar charges are already in place in many other European capitals, including Paris, Berlin and Vienna. “Such taxes have been introduced across the globe in response to tourism consumption and the pressures it places on the provision of public goods and services”, the report states.

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While no specific level is recommended for the tax, the report notes that across EU member states a range between an average of €0.40 and €2.50 per night applies, which varies depending on the type of accommodation provided.

Outlining the logic for the charge, it says that “tourists and other visitors get a short-term benefit from public goods and services, such as water and sewerage systems, utilities, waste facilities, parks, security and public safety services, without having contributed to their funding”.

A tax would ensure guests contribute to the ongoing costs of providing goods and services. It also notes that depending on how it is designed, it could make tourism more sustainable by “providing a revenue stream that can improve environmental and economic sustainability as well as improving infrastructure”.

It says the tax would be regarded as an adaptation of the polluter pays principle, which “calls upon the user of resources to bear the cost in a more sustainable way”. It says that an intention to introduce this tax “should be signalled early” and a process of engagement be undertaken with stakeholders.

The Irish Times reported previously this week that the report advises limiting the use of special low rates of VAT and zero VAT rates. In another finding, it explicitly recommends against using temporary VAT reductions, like that currently in place for the hospitality sector, as a short-term stimulus measure.

It says that the retention of zero and reduced rates should “be restricted in scope and retained only in limited circumstances” – while also “recognising the important role played by zero rates in alleviating food poverty and supporting access to other essential goods and services” and does not not recommend increases in the zero or standard rates of VAT.

However, it does see “scope” to increase the 13.5 per cent reduced rate of VAT in a broadly progressive manner, “particularly where essential items such as fuel and electricity are maintained at a lower rate”.

As society decarbonises, however, it argues that VAT subsidies on fossil fuels should be removed and VAT increased to the standard rate over time. It recommends that those receiving the second reduced rate – that of 9 per cent – should be increased over time to the reduced rate of 13.5 per cent.

The report recommends VAT modernisation moving the burden of administration away from taxpayers.

In other sections, the report recommends increasing the take from wealth, property and inheritance taxes, saying they should “increase materially” in a shake-up of the taxation system. If adopted, these policies could represent a significant reorientation of the system towards taxing wealth rather than focusing more on income. The commission suggests capital gains tax and capital acquisitions taxes could be expanded.