Caribbean tourism is a highly crowded marketplace and destinations walk a fine line between collecting the maximum tourist dollars and pricing themselves out of the market. The cash-strapped Saint Lucia Tourism Association (SLTA) is introducing a new tax on tourism this year to help boost its coffers; but while advocates claim it will help market the destination and develop Saint Lucia’s product, others fear it will have a dampening effect on the country’s biggest industry. STAR Businessweek looks at the details of the tax and its possible repercussions.
What is the new tax?
The accommodation tax, which goes into effect in April, applies to all stay-over guests over 16 years old. It follows a two-tier structure tied to a hotel’s Average Daily Rate (ADR – the average price customers pay per room, per night) and includes not just hotels and resorts but also guesthouses, villas and apartments.
Those accommodations with an ADR above US$120 will carry a fee of US$6 per guest per night, while those with a smaller ADR will levy a US$3 charge. And guests booking via shared platforms such as Airbnb and VRBO will not escape the net – the government will now charge these visitors 7% on the full cost of their stay.
Under the current model, which is still under discussion, the fees will be charged to guests as they check-in and the SLTA is set to host a series of industry meetings to help hotels navigate the new regime. The Association commented: “In the coming weeks, the Tourism Authority is to spearhead further discussions with the sector on the most effective modalities through which accommodation providers will collect and remit the fee to the Tourism Authority, to ensure high compliance levels, amongst other aspects related to implementation of the fee.”
Who will it benefit?
According to the SLTA the tax will be used to “supplement financial resources for the Tourism Authority for the next financial year”. The group elaborated further, saying the revenue would go towards “destination marketing and development” as it pushes Saint Lucia’s products in markets such as the US, Canada, the UK and Europe and also focuses on its flagship ‘Village Tourism’ initiative to promote and encourage local offerings.
Saint Lucia currently welcomes around 350,000 stay-over visitors a year. To hit its ambitious target of 541,000 by 2022, the SLTA is working on increasing airlift seat capacity and load factor on flights to the island – something it apparently cannot achieve with its current EC$35 million annual marketing and promotional budget.
In making a case for the new fees, Tourism Minister Dominic Fedee stressed its impact on the wider Saint Lucian economy, saying: “It’s always a challenge for small countries to allocate much-needed resources towards tourism marketing. The accommodation fee allows tourism to pay for itself, as the tax will be levied to tourists to the island. It frees up much-needed funds for healthcare, education and national security.”
Putting it in perspective
Whether it’s a fee on airline seats or a sales tax or accommodation charges, tourism taxes are nothing new to the Caribbean which has long exploited its biggest industry to reap the maximum benefits for island economies.
Many islands, both within and beyond the OECS, charge a fee for accommodation; these include Jamaica, Antigua and Barbuda, St Kitts and Nevis, Saint Vincent and the Grenadines and Barbados. By comparison, the SLTA claims its tax is among the lowest and the least disruptive to hoteliers who will be using an automated system to collect and remit the funds.
In an era when hidden fees and charges are routinely levied by hotels and tour operators across the globe, it’s doubtful whether they are truly off-putting for travellers who have become jaded to the practice and simply factor a little extra into their budget when planning a trip.
The problem arises when those taxes become excessive, as Barbados found when it introduced not one, but three new tourist taxes in 2018 and was roundly pilloried in the international media for its greedy stance. A desperate move by a country scrambling to reduce its public debt (then 170% of its GDP), it was slammed by travel agents, tourists and accountants Ernst & Young who cautioned that it would significantly increase the cost of the tourism product and render the destination less competitive.
Barbados’ cautionary tale serves to illustrate that Caribbean tourism is a highly crowded marketplace and destinations walk a fine line between collecting the maximum tourist dollars and pricing themselves out of the market.
The degree to which tourism should be taxed has always been a controversial issue in the Caribbean. Calls are growing for governments to refocus the tax burden – shifting it from stay-over guests (who already make a large contribution) to cruise passengers who are arguably more inclined to absorb the cost. In Saint Lucia, the cruise ship head tax is one of the lowest in the region, at just US$5.
Saint Lucia’s new accommodation tax is also at the lower end of the spectrum (the range in Barbados is from US$4.37 to US$17.50 per night) and it’s notable that the destination has so far held back on this type of charge. Given the low rates, the new tax is unlikely to seriously affect tourist appetite for the island. From a policy perspective, however, the main concerns are that it is implemented in a transparent and consistent manner. Tourists and locals alike must know where the money is going, how it is directly contributing to the industry’s sustainability and how it benefits the economy as a whole.
In the worldwide tourism industry, taxes are on the rise, as noted by a 2014 OECD report which highlighted a steep increase over the past decade among OECD member countries. These taxes are used for a variety of purposes: environmental protection, investment in tourism infrastructure, to fund air travel development and transportation services. For the most trafficked destinations, taxes are often used as a punitive measure, upping the fees to prevent over-tourism at vulnerable sites.
The rationale may vary but, with any tax structure, success relies on continual monitoring, evaluation and analysis. A clear link between revenue and results ensures better engagement and buy-in from both consumers and private sector partners. By way of example, Iceland’s accommodation tax is dedicated to developing, maintaining and promoting nature-based attractions under public ownership via a specially-created body, the Tourist Site Protection Fund.
When Saint Lucia’s accommodation tax comes into force this spring, tourists, the public and industry will be watching closely. It may be some time before the benefits are actively felt in the sector but the onus is now on the SLTA to pursue a transparent strategy of clear communication about when and how those benefits will come to fruition.
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