Iceland's Regional Councils Protest VAT Increase

Last week, we reported that Iceland's government was looking to to triple its VAT on accommodation, restaurant meals and tourist attractions. The proposal, which would see VAT increase from seven percent to 25.5 percent as of May 1, 2013, was soundly criticized by tour operators, who suggested that travelers might avoid the country if it became too expensive.

And now the local tourism boards are fighting back, according to Iceland Review: The regional council of Skagarfjörður municipality in North Iceland has "voiced its strong opposition" to the planned increase. A resolution stating that the increase would lead to a decline in tourist numbers and the number of staff employed by the industry was unanimously agreed on in council, which argued that the state will eventually lose out by increasing taxes and that the growth in tourism is not evenly spread out across the different regions of the country, Icelandic website ruv.is reports.

MP for the Independence Party Illugi Gunnarsson has also spoken out against the tax hike. Illugi says that Reykjavík will be the worst affected due to low availability of accommodation in the city, visir.is reports.

According to the Institute of Economic Studies at the University of Iceland, tourist numbers could drop by 48,000 annually if the hotel tax increase is implemented. While currently among the lowest, the change would make the VAT on accommodation in Iceland the highest in Europe.

The government argues that the increase is necessary in order to ensure that the industry grows under realistic conditions and not with an advantage over other industries. The tourism industry is currently exempt from the full VAT rate.

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