Is the “tourist tax” spelling bad news for your business?

by administrator

As recently reported by the Daily Mail, a hundred of the biggest names in tourism, retail and hospitality have come together to campaign to bring back tax-free shopping for tourists travelling to the UK from overseas.

Such firms have expressed fears that the “tourist tax” is holding back the UK economy. There are concerns that big and small businesses alike, up and down the UK, are losing out on potential business due to tourists choosing other European destinations.

What impact has the “tourist tax” had on the UK economy?

As set out by the Daily Mail story, businesses have signalled their concern that the removal of VAT-free shopping since 2021 has put tourists off from coming to London, and that they may instead be visiting cities such as Paris, Milan, and Madrid.

The argument put forward by some – including former Chancellor of the Exchequer Sajid Javid – is that restoring VAT-free shopping has the potential to help grow the UK economy, because it could bring in more income than it would cost. Research has suggested that bringing back VAT-free shopping could give the UK’s GDP a more than £4 billion boost, as well as support some 78,000 jobs.

Despite this, the Treasury is maintaining that a return to VAT-free shopping would cost two billion pounds in lost taxes. Yet, experts have estimated that abandoning the “tourist tax” could bring in a net gain of about £350 million a year.

Are travellers visiting elsewhere?

Recent arguments in favour of ditching the “tourist tax” have referred to statistics such as those showing the extent of tourism from America and the Middle East to the UK, compared to the equivalent figures for American and Middle Eastern visitors to France and Paris.

There are concerns that as the UK continues to plot its longer-term recovery from the COVID-19 pandemic, prospective foreign visitors are noting that every country in the European Union (EU) offers tax-free shopping, while the UK does not.

In effect, as far as such visitors are concerned, the UK is charging 20% more than neighbouring countries for the exact same goods.

Proponents of reversing the “tourist tax” therefore argue that the UK Government needs to consider making changes for the good of the economy, and all UK businesses, especially those in retail, tourism and hospitality that are directly affected by the tax, due to the risk of them missing out on valuable overseas customers.

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