“Huge disappointment” for Iceland’s tourism industry

The planned tax increases on Iceland’s tourism industry have caused “huge disappointment,” according to Jóhannes Þór Skúlason, CEO of the Icelandic Travel Industry Association, SAF. He says the scale of the new direct taxes could weaken investment and the sector’s ability to compete.

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It is a huge disappointment to see the scale of the new direct tax increases on tourism in the country.

SAF estimates that the increases will cost tourism businesses between 10 billion and 11 billion Icelandic krónur. Skúlason says that figure must be viewed against annual profits of about 20 billion krónur. The industry already pays more than 200 billion krónur a year in taxes to the state and municipalities. He compared the proposed increase to receiving 300,000 krónur in take-home pay and then seeing taxes rise by 150,000 krónur.

Skúlason says the measures could reduce investment, affect employment and push prices even higher in Iceland, which he describes as an already expensive destination. He is also “absolutely certain” that the state will not collect all the revenue projected in the budget proposal. He points to an infrastructure charge on cruise ships, which he says was introduced too high and too quickly. A subsequent decline meant the revenue did not reach the treasury as expected.

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I am absolutely certain that not all the money anticipated there will reach the state treasury.

He also criticizes the short notice for the new taxation and says its effects on companies and travelers have not been assessed sufficiently. Iceland faces strong competition from other destinations, he says, and price influences where tourists choose to travel. Norway is a particular competitor, with interest there rising significantly, especially after the football World Cup, while Iceland’s marketing efforts have been inactive for the past four years.

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We can at least state with certainty that no tourists will decide to travel to Iceland because a higher price is available than last year.

SAF has offered the government alternatives for increasing tourism revenue and expanding the sector’s “pie.” These include targeting Iceland’s most valuable markets, persuading existing visitors to stay an extra night and travel more widely, and improving tourism utilization outside the peak season. SAF estimates that an additional night for 30% of current visitors could generate 6 billion to 7 billion krónur in tax revenue, while a 10% increase in utilization from November through May could bring in 8 billion to 9 billion krónur. Skúlason says the government instead chose a short-term way to fill next year’s budget gap.

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The government has chosen a short-sighted way to fill the budget gap for next year.