The Icelandic government’s plans to raise the value added tax (VAT) on accommodation from 7.0 to 25.5 percent as of May 2013 remain unchanged, despite criticism from the tourism industry. While currently among the lowest, the change would make the VAT on accommodation in Iceland the highest in Europe.
Archive photo by Páll Stefánsson.
Minister of Finance Oddný Harðardóttir says that the tourism industry will be given more scope to absorb the tax hikes but that canceling the tax has not been discussed and the budget now assumes revenues from the new tax. The tax is expected to generate ISK 2.6 billion (USD 21.4 million, EUR 16.6 million) next year and ISK 3.6 billion (USD 29.6 million, EUR 23 million) in state funds annually after that, mbl.is reports.
As reported in August, the Icelandic Travel Industry Association has harshly criticized the plans but Oddný argues that it is necessary for the industry to grow under realistic conditions and not with an advantage over other industries. The tourism industry is currently exempt from the full VAT rate.
Last month it was announced that a working group would be established in consultation with the tourism industry to discuss the higher taxation and related issues.
Oddný was asked whether the establishment of the working group indicated that the ministry would consider cancelling the tax. She confirmed that the tax would indeed be implemented but that the ministry would consider giving the industry greater flexibility to adjust to the changes.
The tax hikes have been covered in the international media in recent days and weeks.
An article headlined “Iceland to treble VAT on hotels” recently ran on telegraph.co.uk. Chief executive of the European Tour Operators Association (ETOA) Tom Jenkins told the website: “Iceland [had been losing] its perception as an expensive destination. This tax rise effectively punctures that impression.”