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22 May, 2024
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Hotel industry faces backlash over residence fees

How eco-friendly initiatives could shape tourism taxes

Maria Eracleous

Maria Eracleous

The inclusion of a residence tax within the framework of the green tax reform, affecting hotels, tourist accommodations, and Airbnb, is expected to trigger reactions within the hotel industry.

The argument is that this development will impact tourist demand, bookings, and hotel occupancy, especially during a period when occupancy rates are already lower compared to 2023. Some reactions have already been expressed, albeit mild, as most of the country's tourism stakeholders are attending the International Tourism Fair in Berlin. Therefore, the residence tax is expected to dominate discussions and public statements by hotel association representatives in the coming days, following their return from Berlin.

At first glance, it's plausible that demand for hotel accommodation could be negatively affected since the tax imposition implies an increase in holiday costs. If the proposed €2.5 fee per night is applied, it translates to an additional cost of €17.5 for a week-long vacation. While this might not be deemed prohibitive, it is significant compared to rates in competing destinations. Similar taxes are already in place in other European destinations, albeit with exceptions and criteria. For instance, the guest's age, duration of stay (the tax decreases based on the length of stay), or even the type of accommodation are considered.

This is also the case in Greece, where the sustainability tax varies depending on the accommodation category. For instance, the nightly tax for 1-2-star hotels is €1.5, €3 for 3-star hotels, €7 for 4-star hotels, and €10 for 5-star hotels. The same rate applies to short-term rental houses and tourist villas.

It's worth considering whether a similar system could be implemented in Cyprus, where the fee varies based on the type of accommodation. Especially as special categories for urban and rural hotels are being proposed in Parliament, acknowledging their inherently different characteristics.

Furthermore, apart from categorization and accommodation type, the carbon footprint of the unit should be taken into account. For example, if a unit has installed photovoltaic systems, reducing its carbon footprint, this should be a factor not to be ignored. Hence, this tax could be used as an additional incentive for energy upgrades and the use of renewable energy in the tourism sector.

Additionally, the residence tax could serve as a tool to reduce seasonality in tourism. Since the law aims to manage the negative impacts of tourism, waste management, and production, differentiation between winter and summer seasons should exist, as issues of overtourism and potential negative impacts are mainly seen during the summer. Seasonality in tourism has historically been a challenge for tourism authorities. Therefore, the new tax, expected to be imposed, could be used to achieve the goal of reducing seasonality. Hence, the €2.5 tax could vary not only by accommodation type but also by tourist season.

Moreover, transparency is crucial, clarifying how the funds generated annually from the new tax will be utilized and whether their use will ultimately serve the goal of managing the negative impacts of tourism.

[This article was translated from its Greek original]

Cyprus  |  hotels  |  tourism  |  economy

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