Analysis: What is a tourist tax, what are the arguments for and against, and how much might it raise in revenue for local councils?
By Gerard Turley and Stephen McNena, University of Galway
As the 2024 tourist season ends and Budget 2025 approaches, there is some speculation about a tourist tax. Anyone on or returning from holidays in a European city is likely to be familiar with this tax. So what is a tourist tax, what are the arguments in favour and against, and how much might it raise in revenue for local councils in search of new sources of income?
Many cities or states worldwide levy taxes on short-term stays in paid accommodation such as hotels, guesthouses, B&Bs, hostels, campsites, short-term lets (e.g. Airbnb), etc. As a tax specific to the tourism sector, it is known by various names, including accommodation tax, hotel room tax, bed tax, occupancy tax, overnight tax, or visitor tax. The tax can be an ad valorem tax, expressed as a percentage of the accommodation price, or a specific amount per person per night.
The tax is payable by the guest/visitor/tourist, and the accommodation facility is usually responsible for collecting the tax amount and remitting the receipts to the relevant government. Often the revenue from this tax is earmarked for public investment in tourism development and promotion, for example to finance expenditure on environmental protection and infrastructure at tourist attractions.
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From RTÉ Radio 1's Drivetime, Should we have a tourist tax?
Sub-national tiers of government, usually at the municipal level, administer the majority of these taxes. Typically, the local government in the form of a city council, has discretion over the rate applied to the tax.
One justification for a tourist tax is based on the user-pays principle: visitors use the streets, parks, beaches, water and wastewater, and so they should contribute towards the cost of providing and maintaining these public services. This is one reason why this tax is popular with local governments: it is not imposed on the residents who vote for and elect the local politicians.
This, however, is the main argument against such a tax. Known as tax exporting, where the tax liability does not fall on the local resident and beneficiary of the local service but is exported, in this case, to a tourist. By breaking the link between the local taxes paid and the local benefits received, it weakens the accountability of local government to local residents and the electorate. It is also a very visible tax, which is both good (transparent) and bad (unpopular). In theory, it could also be used to target over-tourism in popular but congested tourist destinations.
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Another argument against the imposition of a visitor tax is the increase in the price of accommodation and the impact that this might have on visitor numbers, tourist activity and competitiveness for the hospitality industry, and the wider tourism sector. As with all taxes, it is about getting the balance right between what is financially necessary and politically palatable. We are reminded of the words of the French statesman Jean-Baptiste Colbert, "The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the smallest possible amount of hissing."
The Commission on Taxation and Welfare report published in 2022 describes accommodation tax rates between €0.40 and €2.50 per night across EU member states, with variations depending on the type of accommodation. As part of a range of measures to broaden the tax base, the Commission recommended the introduction of an accommodation tax, in line with mainland EU countries where the majority levy such a tax, at the city or municipal level. In large or capital cities of some EU countries the overnight flat rate now far exceeds €2.50.
Ireland's largest city and local authority, Dublin City Council (DCC) has considered an accommodation tax. In January 2023, the Head of Finance presented a report on the issue to the Finance Strategic Policy Committee. The report estimated the potential revenue from a 1% tax charged on accommodation, using data on the number of hotel bedrooms in 2022. The estimated annual yield from the tax was about €12m.
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To put that figure into context, the LPT amount in 2022 for DCC was just over €23m, with the income foregone due to the 15% cut in the LPT rate equal to €12m. The data refers to hotel rooms only, and excludes other types of accommodation. As a result, but also due to the increase in hotel prices since then, the €12m estimate is likely to be below the true potential yield. Similar discussions have taken place in Galway City Council where the reported revenue from the tax is closer to €2m a year, or just less than a third of its total LPT amount for 2024.
As it often the case we can look cross the Irish sea for trends. In 2024, the Visitor Levy (Scotland) Act was passed by the Scottish Parliament, allowing local councils to introduce a visitor tax if they so wish. Subject to a public consultation process with residents and businesses, and a required 18-month implementation period, Edinburgh City Council plan to have a visitor levy in place for summer 2026 based on its current draft visitor levy scheme.
Similarly, as local authorities in Ireland generally do not have the legal authority to introduce new taxes, primary legislation in the national parliament would be required to enact this tax. Although probably not in Budget 2025, it may be the case that a tourist tax is not too far away. Finishing with a famous quote from the American statesman Benjamin Franklin, "…in this world, nothing is certain, except death and taxes", it may only be a matter of time before we see a tourist tax in Ireland. If so, will we see fewer tourists? The goose analogy comes to mind, again.
Dr Ger Turley is a lecturer at the J.E. Cairnes School of Business and Economics at the University of Galway. He is the co-manager of the Local Authority Finances website. Stephen McNena is a lecturer in Economics at the J.E. Cairnes School of Business and Economics and Whitaker Institute at the University of Galway.
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The views expressed here are those of the author and do not represent or reflect the views of RTÉ
