Investor Presentaiton
FINANCING SUSTAINABLE TOURISM IN KHYBER PAKHTUNKHWA
Broad usage of
tourism taxes
worldwide
Revenue
generation
for local
govt.
Curb the
negative
impact on
tourism
Build
more
resilient
systems
Serve a
regenerative
function
Now coming to tourism taxation, taxes can be
levied on tourist activities for several reasons.
a) Broadly, they can help generate revenues for
local governments, which can then be directed
towards maintaining tourist destinations, or
they can help regulate tourist flows within the
area, according to season, length of stay or
locality.
b) Revenues from tourism taxes have also been
used to curb the negative impacts of tourism;
overdevelopment of tourist activities can lead
to a degradation of environment and natural
resources, which can be regulated by imposing
specific taxes. For example, in 2019 New
Zealand introduced an arrival tax of NZD 35 for
foreign visitors which funds sustainable
tourism and conservation projects.
c) Additionally, in some countries, revenues
have been used to build more resilient systems
of tourism, which are less sensitive to shocks
such as climate change and pandemics.
d) In some countries, tourism taxes have also
served a regenerative function where revenues
have been dedicated to introducing initiatives
to protect nature, restore cultural heritage and
strengthen local communities. An example of
this is the Sustainable Tourism tax in the
Balearic Islands, which is channeled into a
Sustainable Tourism Fund used for initiatives
that aim to protect the environment, promote
sustainable tourism, recover cultural herit-
age and conduct scientific research. In the
Maldives taxes on tourism is the largest source
of revenue for funding Male, where most of the
citizens live. Without this transfer, there would
strong political opposition to developing
enclave tourism8.
The form and amount of tax levied can vary
with the type of tourist destination and influx of
tourist activity. Generally, taxes on tourism can
take the form of sector-specific levies, value-
added tax and fiscal incentives (elaborated
below). Their impact on demand is determined
by the destinations' relative price elasticity of
demand. Destinations such as coastal regions
are more sensitive to price changes as
compared to those with unique attractions or
ones that are frequented for business
purposes. The latter have a competitive
advantage-tourists' reason for traveling
cannot be substituted.
In order to ensure the sustainability of tourist
practices, taxation has to serve a regenerative
purpose. For this reason, there is a case for
separating tourism tax revenues from general
revenues. Studies find that there is an over-
arching consensus among different actors
within the tourism sector that tourism tax
should be a specialized tax where the revenues
should be allocated and invested as such.
Using revenues to preserve and regenerate
local ecology and cultural heritage in
communities that may consider tourism an
invasive practice can build public legitimacy
and support in the long run.
Additionally, research also suggests that local
governance and representation is vital to
balancing stakeholder interests and to gain
political support for any tax regime. In Iceland,
Barcelona and Balearic Islands, tax revenues
are locally governed, and the decision-making
process involves members of the hospitality
industry, municipal governments, community
groups, non-governmental organizations
(NGOs) and academics. Furthermore, research
from the US and Istanbul shows that
earmarking tourist taxes through a local body
facilitates higher-yielding investments for the
tourism sector and local governments in the
long-run 10
6For example Sweden, Germany and Switzerland.
7Group NAO (2020) Tourism Taxes by Design - White Paper
8United Nations Environment Programme and World Tourism Organisation (2005). Making Tourism More Sustainable: A Guide for Policy Makers.
9Group NAO (2020) Tourism Taxes by Design - White Paper
10jbid
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