The new Government Tourism Strategy proposals were published last week and have been met with mass indifference all round.
The problem is it that it fails both the outbound and inbound sectors at the same time by not addressing the tax issues intrinsic in both. Instead of cutting sky-high taxes such as VAT and air passenger duties, which are putting visitors off coming here, ministers instead chose to tinker with bank holiday dates.
Ok, so they said they would move the Bank Holiday (Hurrah) and that we would see and enjoy the benefit from increased traffic due to the Olympics (Mmm, not sure about that one), but the Government's report, while acknowledging the calls for lower taxes, says that, while it will keep the matter under review, "the financial position we inherited means we must give priority to our fiscal base".
In other words, we'll keep VAT and all the other taxes just as they are!
In a nutshell, VAT, APD and TOMs have become the most pressing concerns for the industry as their high rates are making UK tourism most uncompetitive and travel more expensive.
While many European countries have actually reduced APD to encourage activity, the present Government increases it. The Government consistently fails to see the benefits to the UK economy of a buoyant overseas holiday industry and the lack of it in tourism strategy only reinforces this.
The British Hospitality Association report said cutting VAT on hotel rooms to 6.5%, as they have in Germany, would help create 236,000 jobs over the next five years and boost visitor numbers. Clearly, we are missing out on an opportunity to create 236,000 new jobs. Britain has just come bottom out of 133 countries for price competitiveness.
And the policy does not address the biggest problem affecting inbound tourism. If you are a company based here trying to sell the UK abroad, you suffer a huge competitive tax disadvantage.
Most visitors coming to this country from long-haul markets (such as North America or Asia) buy their holidays through tour operators. In this country, they are taxed under the Tour Operators' Margin Scheme (TOMS). TOMS is applied to the margin between the cost of the components and the price charged to the consumer.
This margin is not profit. It contains everything not directly supplied by another company. All in-house supplies and all staffing are taxed under TOMS, as are agents’ commissions, marketing, and sales costs. These expenses are the process of adding value. TOMS is thus a levy on the investment made in order to assemble, sell, and deliver visitors to the UK. For a long-haul operator, it is equivalent to a corporation tax of 800%.
If a company is based outside the EU, TOMS is not collectable and so not paid. Thus nearly all incoming operators that sell to consumers are now based off-shore.
Conversely, as this tax is on “services supplied in the EU,” all non-EU holidays sold in the UK (say, to Turkey or to Florida) are untaxed. Thus TOMS is a tax on exports and grants tax-free status to our tourism imports.
For a UK-based company, it is overwhelmingly more sensible to invest in selling non-European holidays than to try and sell a UK holiday to a visitor.
This problem is not actually to do with the level of VAT, but the way in which it is applied to exports. We desperately need to attract visitors to this country. But the process of doing so is subjected to a punitive level of taxation.
Really there should be no VAT on exports which are used abroad. Tourism is an export but the creation of holidays in the EU for visitors from outside the EU is subject to VAT under TOMS. That is different from every other type of export and it’s clearly disadvantageous to inbound tourism.
If the government is serious about encouraging more people to come here, then the Minister needs to go to Brussels and convince the other member states to reform TOMS because there is a massive disincentive on EU-based companies promoting EU-based holidays.
Government Tourism Policy 2011.pdf
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