Auld Reekie weighs up a tourist tax

Donald-Drysdale By Donald Drysdale for ICAS

6 November 2018

As Edinburgh contemplates introducing Scotland’s first tourist tax, Donald Drysdale wonders whether Adam Smith would have approved.


Budget season is here again.  Philip Hammond has presented his annual Budget to the House of Commons, and Derek Mackay is getting ready to deliver his draft Scottish Budget at Holyrood on 12 December.

At a deeper level of fiscal devolution, the City of Edinburgh Council (which I shall refer to here as ‘the Council’) is responsible for its own budget and has launched a city-wide consultation on proposals for a Transient Visitor Levy (TVL) or 'Tourist Tax'. This consultation will close on 10 December.

The Council is the city’s local government authority, currently led by an SNP/Labour coalition. Council leader Adam McVey has claimed that revenue from a TVL could support key services for residents and visitors – including improving public amenities, parks, public spaces, clean streets, and improved marketing of the city.

What is a Transient Visitor Levy?

A TVL or tourist tax is a levy on visitors, usually based on tourist accommodation. Initial suggestions for Edinburgh are that it might be a flat rate charge per head for short-term stays of up to 7 nights. An alternative might be a percentage supplement on accommodation charges.

TVL is not a new idea. Based on information published by COSLA the UK is one of only 9 EU member states which don’t currently charge a tourist tax. Among those that do, there are wide variations in the way tourist taxes are levied, the rates payable, and the purposes for which the proceeds are used.

Comparing existing TVLs is problematic because tourist industry businesses are subject to many different taxes. Corporate and personal income taxes, land taxes and business rates are all relevant in determining the total tax burden they bear. While many European cities already levy tourist taxes, they are mostly in countries where hotel charges are subject to lower VAT than in the UK.

Possible TVLs were considered by Edinburgh in 2011 and 2012, by London in 2015, Glasgow in 2016, and Bath and Hull in 2017. While details of a TVL for Edinburgh have still to be developed, the Council has claimed that the amount contributed per visitor would be tiny and would have no impact on the city’s increasing visitor appeal. Nonetheless, it has been estimated that the aggregate annual TVL flowing to the Council might amount to between £11 million and £29 million.

Power to charge a TVL

It was in 2011 that the Council first proposed a TVL on visitor beds in Scotland’s capital city. Although opponents, including the Scottish Government, attacked the idea as ‘illegal’ and ‘uncompetitive’, the Council decided in principle that it would press ahead.

Investigations by the Council in 2012 confirmed that there were no existing powers for local authorities to raise taxes other than council tax and rates. New legislation would be required, and it was not entirely clear at that stage whether or not a TVL would fall within the remit of the Scottish Parliament as “local taxes to fund local expenditure”.

It now appears that the necessary powers could be established by the Scottish Parliament through primary legislation. Doubtless details and amendments could then be dealt with in secondary legislation, although such an approach would not necessarily be welcomed by tax advisers.

A TVL model for Scotland

By May 2018 the Council had won the support of all Scottish local authorities to seek power to introduce TVLs. In June COSLA announced its backing for Edinburgh’s proposed TVL consultation and, using the hashtag #stayalittlepayalittle, published a paper (already referred to above) setting out a TVL model for local authorities throughout Scotland.

COSLA wants approval, not for a new national tax, but for a tax that could be introduced locally if the conditions were right. It asserts that no local authority would implement a TVL without consulting widely and assessing the impact on local tourism and economic strategies, and price sensitivity would be considered as a key component.

Thoughts from Adam Smith

According to the famed Scottish political economist Adam Smith, taxes should be levied at a time or in a manner which it is most likely to be convenient for the contributor to pay. Tourist taxes paid as part of accommodation costs should meet this requirement. However, they might not meet some of Smith’s other maxims.

Taxes should be certain and not arbitrary, and this means they should be easy to understand. Across Scotland, a multiplicity of complex charging structures and rates could make tourist taxes impenetrable, leading to a general perception by visitors that they are being fleeced by the tourist industry – a concept that may seem strangely familiar to some who travel overseas.

Taxes should be economical to collect. Tourist taxes will add an extra layer of tax compliance to businesses in the tourist industry. This might be acceptable for large hotels with sophisticated accounting and tax reporting systems – although perhaps onerous for those operating in multiple local authority areas. It could be particularly burdensome for small guesthouses, bed and breakfasts, caravan and campsite owners, and lessors through online platforms such as Airbnb.

Taxes should be fair and proportionate. This means they should be progressive rather than regressive; in other words, they should place the greatest burden on those most able to pay. The suggestion that the Council might charge a flat TVL of (say) £1 or £2 per night would be steeply regressive, since those staying in cheap hostels or campsites would pay as much as those in 5-star hotels.


It is understandable that Scottish local authorities are keen to develop new sources of revenue that will be under their own control. It would be unfortunate if, in rushing to do so, they were to disregard Adam Smith’s principles and introduce complex, regressive new taxes that were hard for visitors to understand and difficult and costly for businesses to collect.

Article supplied by Taxing Words Ltd


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