World Travel Council Warns Against Overtaxing Tourism

The council recently drew Europe’s attention to the importance of avoiding unproductive tax hikes on the tourism sector, and stimulating economic growth and jobs instead.

The European Union –whose predecessor was the European Economic Community, after which the AEC is modeled--is currently facing new taxes and additional regulations that will impact the tourism sector’s ability to thrive and create jobs at a time of dismal economic conditions in Europe.

The WTTC letter, written by Dr. Michael Frenzel, WTTC Chairman and Chairman of the Executive Board, TUI AG, and David Scowsill, President and CEO, WTTC, reminded European Finance Ministers that travel and tourism is a key generator of employment, directly creating 10 million jobs across Europe, substantially more than the automotive manufacturing (3.2 million workers), mining (3.6 million), and financial services sectors (8.5 million).

The letter said: “Given the labor intensity of this group, travel & tourism is one of the few economic sectors which can generate growth with jobs.

“Travel and tourism is seen as a ‘cash cow,’ an ‘easy source’ for generating quick money through new or expanded taxation. However, the evidence suggests that taxing tourism does not reap benefits.

“Recent research by WTTC shows that the UK’s Air Passenger Duty costs the UK economy £4.2 billion in GDP and 91,000 jobs through lost business.”

The Netherlands abolished its air departure tax after one year following significant decreases in passenger volume. The €300 million earned in tax revenues was negated by the cost of €1.2 billion to the economy as passengers used alternative airports in neighboring countries.

“The Irish Air travel tax of €10 per person was reduced to €3 per person following a 2 million decrease in travelers to Ireland over 3 years. In Germany, the reduction of VAT from 19 percent to 7 percent for accommodation services at the beginning of 2010 – in the midst of the financial and economic crisis – has paid off economically. The number of available jobs in the hotel industry has since increased on average by 20 percent, and the number of unemployed persons has dropped significantly more than in other sectors.

“Simple measures can be taken to stimulate travel and tourism, increase visitor revenue, and, therefore, jobs. For example, a recent study by WTTC and the World Tourism Organization showed how improvements in visa policies in G20 countries could increase travel and tourism employment by an additional five million jobs over three years and generate an additional US$206 billion in tourism exports. This research was presented to the G20 world leaders by President Calderón at the G20 meeting at Los Cabos in June.”

The lesson to be learned from recent European attempts to raise taxes on the tourism sector is this: both Europe and the ASEAN grouping need to carefully consider the benefits of easing taxation, travel fees and other regulations.

In a world suffering from economic dislocation, lower taxes on tourism mean higher tourist spending, and more jobs: governments can only ignore these facts at their peril.