Reports said last week that the rise for hotel rates could be particularly costly, after Finance Minister Oddný Harðardóttir said that the hotel VAT tax rate would more than triple under the proposal, climbing from just seven per cent to the country’s standard rate of 25.5 per cent.
Harðardóttir argues that Iceland’s tourism industry is no longer in need of subsidisation because the economy has recovered substantially since its collapse in 2008.
The reduced rate of seven per cent had initially been introduced to the tourism sector in order to boost the number of annual visitors to the island nation. And statistics show that hotel capacity is largely made up of foreigners, with only 10 per cent of rooms in Reykjavik typically rented out to Icelanders.
However, the move has since prompted backlash from tourism and aviation heads.
Executive director Tom Jenkins said on behalf of the European Tour Operators Association (ETOA), “Iceland was in a benign state: they were increasing their visitors and length of stay. Much of the drive behind this growth has been Iceland losing its perception as an expensive destination. This tax rise, imposing a sudden price increase of 17 per cent, effectively punctures that impression,” Breaking Travel News reports.
Jenkins went on to say, “This tax rise is being introduced at the start of the inbound tourism season, just when it will do the most damage. It penalises any operator who has signed contracts and published brochures featuring Iceland next year. No company can absorb such a surcharge.”