Analysis: A tourist tax levied on overnight stays in paid accommodation is unlikely to feature on Paschal Donohoe's hit-list this week
By Gerard Turley and Stephen McNena, University of Galway
As Budget 2026 approaches, attention will be on the tax package to be unveiled by Minister for Finance Paschal Donohoe, but one tax unlikely to feature is a tourist tax. Unlike a tax on day-trippers, as in Venice for example, a tourist tax is a levy on overnight stays in paid accommodation. Other names commonly used are visitor levy, occupancy tax, accommodation tax, bed tax, overnight levy or city tax. The accommodation operators typically covered are hotels, hostels, B+B, guesthouses, caravan and camping sites, holiday rentals and short-term lets.
What's the purpose of a tourist tax?
The main purpose is as a revenue source for government, often to pay for tourist-related services and infrastructure. By charging tourists, government gets them to pay a contribution towards their use of public services and the societal costs imposed by visitors. The other main reason cited is in relation to the regulation of visitor flows and tackling overtourism.
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From RTÉ Radio 1's Drivetime, is it time for the Government to introduce a tourism tax?
Both the 2022 Commission on Taxation and Welfare and the 2024 Dublin City Taskforce recommend the introduction of a tourist tax, as a means to widen the tax base and to raise additional revenue for government, whether that is central/national or local as in the case of Dublin.
What are the arguments for and against this tax?
It is a new source of revenue, addressed to tackle the cost of tourism and, if imposed locally, it strengthens local fiscal decision-making powers. On the other hand, it increases the tax burden on the tourist sector, leading to a possible loss of competitiveness and tourist-related jobs. It is discriminatory as it falls on only one segment of the tourist sector i.e. accommodation services. Also, it generally raises a relatively small amount of revenue.
How would such a tax be designed?
The usual design features are the base and liability, exemptions and discounts, rate and collection and hypothecation. The coverage applies to accommodation providers, per room or per person, with possible exemptions for student accommodation and timeshares. While the tax is imposed on the domestic/international visitor, discounts or waivers can be granted to certain categories of visitors, such as children, the elderly or those relying on emergency accommodation.
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From RTÉ Radio 1's Today with Claire, discussion on the plan to bring in a tourist tax in Wales
The rate can be a flat charge, or a percentage of the price of the accommodation. Collection is normally by the accommodation provider, and remitted to government with a possible percentage share retained to cover administration expenses. The other main design feature is the hypothecation nature of the tax, namely, the revenue can be ring-fenced for tourist services and/or tourist infrastructure. This often helps to make the tax more palatable to taxpayers.
Any possible impact will depend on the price sensitivity of visitor demand, and in turn, the level and visibility of the tax, purpose of visit, uniqueness of the location, and the existing VAT rate on accommodation services. Although it is difficult to measure the price elasticity of visitor demand, the tourist industry claims that visitor demand is price sensitive and that a visitor tax would damage competitiveness and jeopardise the viability of some accommodation providers, and, indirectly, other businesses in the tourist sector such as restaurants and operators of visitor attractions.
How much revenue would such a tax raise?
As with any new tax, annual revenue depends on the tax base and the tax rate. We can use the number of beds provided by accommodation operators as a proxy for the tax base. Fàilte Ireland provides data on accommodation types, bedspaces, and occupancy rates, with the latter varying by room/bed, season, and location. In our research we take an overall bed occupancy rate of 55%, with no exemptions applied. As for the tax rate, we apply hypothetical flat rates, from a minimum charge of €1 per person, per night to a maximum charge of €3 per person, per night.
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From RTÉ News, the Dublin City Taskforce has recommended extra gardai and a tourist tax to improve Dublin city
Based on accommodation data on bedspaces in January 2025, the total estimated revenue nationwide ranges from a low of €32m (minimum charge of €1, on hotels only) to a high of €213m (maximum charge of €3, on all Fàilte Ireland approved accommodation and an estimate of short-term lets). As for location, whereas a tourist tax of €1 per person, per night on all paid accommodation could potentially raise €7.8m for Kerry County Council, the same tourist tax would only raise €2m for Wicklow County Council, a local authority with a similar population as Kerry but with an economic profile less dependent on tourism and visitor numbers.
How have many other countries fared with a tourist tax?
Many governments worldwide impose a tourist tax. Municipalities in the US, Canada and throughout the EU levy such a tax, usually at the city level. In cities we have examined, including Toronto, Vancouver, Amsterdam, Berlin, Paris, Lisbon and Porto, the rate varies from €3 per person per night to 12.5% of the cost of accommodation. Differences in name, coverage, exemptions, and rate reflect the fact that the tourist tax in most countries is a local tax, based on local circumstances, priorities, and choices.
Edinburgh City Council estimates that its 5% tourism levy will raise the equivalent of 3 to 4% of its annual budget, a not insignificant amount.
A recent example is Scotland and its Visitor Levy (Scotland) Act 2024, which gives local authorities in Scotland the choice to impose such a levy, and strike the rate charged. Edinburgh City Council estimates that its 5% levy, due in summer 2026, will raise £45 to £50m a year by 2028/29. That's equal to 3 to 4% of its annual budget, a not insignificant amount.
Next steps in Ireland?
If something similar is to happen here, the next steps would involve some commissioned research (including the impact of such a tax on tourist numbers) and a process of public consultation with all stakeholders. This would be followed by enabling legislation and an implementation phase. Although unlikely to happen very soon, it is possible that a tourist tax of some sort could be in place by the end of this Government's time in office. While it might not feature in this week's budget, it could make an appearance in the future.
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Dr Gerard Turley and Stephen McNema are lecturers in the J.E. Cairnes School of Business and Economics at the University of Galway
The views expressed here are those of the author and do not represent or reflect the views of RTÉ
