Business leaders' anger as key tourist tax questions remain

It comes after Scottish Government plans to give councils powers to put a tax on tourists passed its first stage in January.

Many businesses say they recognise potential benefits of a visitor levy, including the provision of better infrastructure and facilities to manage tourism hotspots and peaks, but there are still concerns around key details, such as ringfencing of funds.

Now business representatives want the duration of the next stage of the Bill to be extended to consider critical points, ranging from charging structures to exemptions, and have approached the Minister for Community Wealth and Public Finance.

In an industry that doesn’t have its troubles to seek, the tourist tax move comes as tension remains around the introduction of a licensing scheme for short-term lets in Scotland, with the STA saying “what we have seen is a lot of difficulties in the application of the short-term let license across the whole of the country”.

The alliance revealed that Scotland has lost a fifth of its short-term letting accommodation stock as a result of what was described as a “botched” regulatory system.

The tourist tax legislation suggests the new levy should be a percentage of visitors’ accommodation costs and would apply to people staying in hotels, hostels, bed and breakfasts, self-catering accommodation, campsites and caravan parks.

Marc Crothall, chief executive of the STA, the overarching leadership and representative body for Scotland’s tourism and hospitality industry, has seen models of many descriptions across Europe, with 21 out of 27 EU countries using some form of
visitor levy.

He believes Scotland’s version still needs work and that the alliance’s tiered model should be adopted.

Marc Crothall has called for an extension to the second stage of the Bill (Image: STA)

He told Business HQ Monthly: “We have written to the minister to ask that the stage two decision time be extended because the key questions and answers that are needing to be agreed on are going to take a little more time and shouldn’t just be rushed through.

“There are some big issues there, not least the charging methodology and whether the application would be a percentage model or a fixed fee model.

“We had positioned a fixed fee proposal through a tier structure which is being considered.

“There’s a whole heap of other areas, exemptions and the need for a more refined set of words that tie in the use of the levy to be used for what it is intended to be used for, and that is to enhance the quality of the visitor experience.”

He added: “What has been set out initially is a bit too woolly, and we would like to see a tightening of the conditionality in the first instance.”

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Mr Crothall continued: “We have also made it very clear that what is a critical need is that there is a cost/benefit analysis that needs to be completed before such time any final green light is given by any authority to introduce one (a levy).

“We are very much of the view that it does require a minimum of 18 months from the point of consultation from the point of which an authority elects to take forward a visitor levy introduction and not, as the stage one committee reported suggested, 12 months would be acceptable.

“The earliest at which any authority could potentially implement the Bill, would be the spring of 2026, as in physically start collecting a levy from a visitor.

“The Bill is to pass through Parliament toward the end of June, I guess before the summer recess, and then you’ve got the 18 months.”

Potential charging estimates vary.

“We have heard five, six, seven per cent being bandied around as a potential percentage of an accommodation rate, and, if you were in a high-end accommodation, up to five to six per cent of a £500 a night room is a lot on top.”

There are concerns the levy could have a negative impact on tourism (Image: Getty Images)

In pressure points such as Highland, Edinburgh and Glasgow council areas it is argued infrastructure and facility upgrades would boost the tourism industry as well as communities, and plans are being considered.

The Scottish capital’s council has said it could raise around £25 million a year through its newly formulated visitor levy.

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Glasgow’s City Treasurer called for the ability to raise income from people coming to the city through the tax and Highland has noted the need to look at “further potential income and opportunities”.

Mr Crothall said: “If Edinburgh, for argument’s sake, because they are probably more advanced than others, elected to go with it, they would still have 18 months of consultation to complete before such time a decision is made and then a charging model and implementation of collection could be achieved.

“We are also very mindful of the fact that as a competitive destination in terms of price some of the suggestions around the level of the levy being collected is actually at risk of putting Scotland at a disadvantage.

“We are already an extremely costly destination to enjoy tourism and leisure experience against our competitors.

“I have just come back from the Canary Islands and you have a seven per cent tax model there, 10% on mainland Spain.

“The assumption is people will still come and pay.

“They will pay to a point but also I think there is a big question mark and a lack of true appreciation that the levy would apply to Scottish residents choosing to stay away from home in paid-for accommodation, for whatever reason, business and leisure, if an authority chooses to implement it.

“I don’t think those factors are fully understood and appreciated in our domestic market.

“Our domestic market is a big part of our audience as well.”

He said: “It is on every business, which is why we have put forward a tiered structure. It’s another cost on top of a cost and VAT also applies to the levy, and in the case of the smaller businesses, particularly self-catering properties, may choose at the moment to operate below that VAT threshold of up to £85,000, if you apply the levy on top as part of the accommodation rates it accelerates your turnover far quicker to that £85,000 threshold.

“It could result in the number of room nights being available by that particular business being shortened, again further impacting on lack of availability.”

He also said: “It is frustrating because there is demand.

“Certainly, international demand is there, which is great, and there are signals that some of the domestic recovery is better and looking better than it was last year.”

However, even with the uptick, a levy “puts greater pressure on our competitiveness both in availability of product and pricing”.

Mr Crothall also said: “It is a very fine line that needs to be trodden and it needs to be given as much time as it is due to get it right and, importantly, even if an authority decides to say yes we want to go ahead and implement a tourist tax, or visitor levy, the cost/benefits analysis and consultation with the community.”

Neil Ellis, chair of the Edinburgh Hotels Association, said: “Edinburgh is an intricate ecosystem whereby visitors and their very welcomed spend contribute to all aspects of the economy, not only here in our amazing capital but throughout Scotland.

“We would want all messaging around the introduction of the levy to be and remain positive.

“However, we have some concerns at this time which may or may not be addressed in stage two of the Bill as it passes through Parliament.

“Notwithstanding the decision on which charging model to adopt; there is currently no cap proposed as to the amount a local authority can charge as a percentage.

“We wish a cap to be put in place to protect the reputation and ability to compete as a destination. The UK is already one of the highest taxed destinations in Europe and we wouldn’t want to see that position made any worse.

“It’s easy for people to say a visitor levy wouldn’t put them off visiting a destination when they’re only paying a levy of three euros a night and 10% VAT.”

READ MORE: Should a 'tourist tax' be introduced in Scotland?

He added: “We want to see a mandated and constituted oversight board created in each local authority area to ensure an agreed distribution of the levy funds to wholly benefit the visitor as stated in the Bill. This must include representatives from key tourism industry stakeholders aligned and committed to its published tourism strategy.

“Finally, and most importantly, we see the visitor levy as an opportunity to do amazing things to enhance the visitor experience in Edinburgh, enabling us to support our city-wide agreed 2030 tourism strategy and implement its action plan.”

Roland Smyth, head of the Scottish Hotels and Leisure Group at international law firm CMS, also looked at the concerns.

He said: “Tourism is one of Scotland’s key economic sectors and Edinburgh is on the brink of becoming a truly global city, on a par with the likes of Paris, Los Angeles and Sydney.

“We should be wary of killing the golden goose in an increasingly international and competitive market. To grow the sector, a supportive regulatory environment is needed, with tax being a key part of that.

“International tourists visiting Scotland already face high levels of VAT and Air Passenger Duty.

“Where a tourist tax has been applied elsewhere in Europe, that has historically been in the context of lower levels of VAT on accommodation than we have in the UK.”

Roland Smyth has pointed to Scotland's tourism assets as being worth protecting (Image: NQ Design)

Mr Smyth said: “The draft visitor levy legislation anticipates councils each deciding their own levy percentage rates. Many businesses are concerned about the lack of an upper cap.

“The draft legislation says revenues should be used to develop, support or sustain facilities and services which are substantially for or used by leisure visitors, with the Scottish Government currently considering whether business visitors should also benefit.

“However, we’re in an era when Scottish local authorities’ balance sheets are under pressure as never before. Will every council operating a visitor levy always truly ring-fence the proceeds as additional funds, and resist the temptation to reduce budgets in the knowledge that visitor levy income will bridge the gap?

“Effective monitoring and reporting structures will not just need to be legislated for; they will need to be implemented fully to ensure revenues are deployed properly.”

Leon Thompson, executive director of UKHospitality Scotland, said introducing a visitor levy “will put destinations in Scotland at a further competitive disadvantage”.

“The UK is already a more expensive place to visit than competitor cities and destinations in Europe, where, for example, rates of VAT are much lower. The percentage model, set out in the legislation, could quickly increase the price of a holiday.

“UKHospitality Scotland believes that there must be cap to ensure charges do not become excessive.

“Legislation fails to adequately address the role of our businesses in shaping decisions on how revenue should be spent. It is vital that money raised be used to boost the visitor economy. The introduction of a levy will also bring significant costs to our businesses. So, it seems only fair that accommodation providers be able to claim back, at least, this initial outlay. After all, local authorities will cover their administrative costs from levy funds.”

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MSPs voted 86 to 30 in favour of the Bill passing stage one last month.

A Scottish Government spokesperson said: “The timetable for stage two considerations of the Visitor Levy (Scotland) Bill has already been agreed by the Scottish Parliament. Once a Bill has been introduced, Parliament decides the timetable the Bill follows.

“A visitor levy will be a force for good, giving councils the opportunity to reinvest the money they raise in facilities and services largely used by visitors. Enabling councils to charge a levy in their area, if they wish, would also be a significant step towards empowering local government and strengthening local democracy. The Scottish Government has been engaging with the tourism industry and other stakeholders on the proposed levy for a number of years and continues to work with them as part of an expert advisory group.”

Mr Crothall said: “Unlike the short-term lets licensing, it needs to be given sufficient time to be thought through, and what lands at the outset needs to be the best possible position to be in, and not have a multiple of different complexities.

“What we’ve seen is a lot of difficulties in the application of the short-term lets licences across the whole of the country.”

He also said: “Across the piece, I think we have probably at this moment in time lost about 20% of the short-term let accommodation stock from businesses who have chosen to close their doors and not trade or not make themselves available for short-term let rental.

“The implication of that is significant because it is not just an Edinburgh thing, there are hundreds of properties on the Isle of Skye where homeowners are saying ‘no actually I’ll just withdraw it from the market’.”

Mr Crothall said: “People not staying in those properties 15 or 20 weeks of the year when they might be let out is money not being spent in the local economy.

“I know there are challenges around accommodation in Edinburgh for the Fringe festival in particular.”

Tours, an important area, are being impacted, Mr Crothall said the international tour operator community is “now struggling to place what is a demand for accommodation, because the accommodation is not available in those destinations any longer”.

“That has this knock-on impact,” he added. “Any business can take their bookings elsewhere. They know that there are other destinations that will accommodate them.”

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Our snapshot shows that in Edinburgh, by January 30, there were 3,787 license applications, with 700 granted, 52 withdrawn and none refused. Highland Council said in its area 7,501 applications had been received, with 2,547 licenses issued, and no applications refused, by February 7.

In Glasgow, by February 22, there had been 1,202 short-term let applications, with 109 applications granted and 174 applications “preliminary refused on breach of planning control”.

Asked if it is believed the scheme is a success, a spokesperson for Glasgow City Council said: “The use of new rules on short-term lets is still at a relatively early stage. However, as a local authority, we are expected to implement legislation as passed by parliament.

“The growth of the short term lets has created issues for residents in places.”

It has gone smoothly to get to this stage, said the STA an organisation made up of over 250 trade associations, businesses, destination groups and other organisations with an interest in tourism and hospitality. In December Lord Braid ruled parts of Edinburgh’s Airbnb-style short-term lets policy are “not only unfair, but illogical” around backdating licensing. A report is due back to councillors in Edinburgh.

Asked about its response, the spokesperson for Glasgow City Council said: “If a host had been operating a short-term let prior to October 2022, the host was considered an ‘existing host’ and to continue operating the short-term let while an application was being considered by the licensing authority, had to submit a short-term let application by October 2023 to the licensing authority.

“If a host had never operated a short-term let prior to October 2022 then under the legislation the host is considered a ‘new host’ and not able to operate a short-term let until the licensing authority has granted a short-term let licence to the host.”

Sector body the Association of Scotland’ Self-Caterers said it “remains in dialogue with both national and local government in order to establish a fair, legal and proportionate regulatory framework”, adding: “In the spirit of constructive engagement, we presented legally robust proposals to Edinburgh council to address specific challenges in light of the recent judicial review, which we believe would be a win-win scenario for both parties.”

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The Cockburn Association, the Edinburgh heritage watchdog that argued in favour of the legislation and campaigned with other city groups for its introduction, examined the Lord Braid decision.

Terry Levinthal, its director, said: “So what does this judicial review mean for Edinburgh, and indeed other parts of Scotland thinking of designating control areas?

"Firstly, it does not have a retrospective application. It is a useful tool in managing short-term lets in pressurised areas but will have little effect if that pressure already exists.

“However, the decision does not mean that a change-of-use consent may not be required – this is for the planning authority to decide.

“For many communities in Edinburgh, this will be a very unwelcome decision. The fact that the city council have declared a housing crisis illustrates the scale of the problem, of which short-term lets have contributed.”

Fiona Campbell, chief executive of the ASSC, said: “Such were the problems endemic with the licensing and planning regulations that Edinburgh council have been the subject of two judicial reviews.

“The fall-out from this was not localised but had much wider repercussions throughout Scotland. In response, the ASSC developed legally sound policy recommendations which would make for a more effective framework.

“Yet another opportunity has been missed to amend legislation which will materially benefit the £1bn self-catering sector and help protect livelihoods and Scotland’s wider tourism sector.

“One crucial area the Scottish Government has failed to acknowledge the interlinked nature of planning and licensing, which is a major contributing factor to the delay of the awarding of secondary let licences.”

Ms Campbell added: “It is critical to address this issue to remove uncertainty for existing operators, give reassurance to local authority planning and licensing authorities that their policies are lawful, and to ensure consistency across Scotland . . . and, of course, to give assurance to lenders to the sector, whose ability to lend in the status quo is hugely compromised.

“We have articulated our concerns to government but sadly the so-called New Deal for Business is not living up to expectations.

“Small businesses don’t just want to be listened to – there are myriad sub-groups and working groups doing just that across government – but actually heard.”