“I’ve been thinking … A Bed Tax must be Fair”
Abstract: Key point … suggested use of the existing GST system to charge a tourism-related bed tax … then having the GST system as it is presently constructed to facilitate a rebate to accommodation providers, those providers charged with the bed tax … thus spreading its cost over all members of the community … all of whom also benefit from local tourism-related activities.
A fair bed tax: Queenstown Lakes District Council is just the latest New Zealand Territorial Local Authority to dabble with the introduction of a targeted rate, intended to be levied on its district’s short- term accommodation providers.
Unsurprisingly, the “affected’ (targeted) hotels, motels and others providing this form of accommodation, are crying “foul” … or more correctly, “unfair”.
And … they have a point.
For a town such as Queenstown, together with its hinterland, no other New Zealand Council is quite so beholden to tourism for overall community economic benefit derived from short term stayers. The benefits of tourism activities in the QLDC area extend district- wide and are shared by many other businesses and persons in addition to those of its accommodation sector.
That the burden of a proposed so called “bed tax”, planned to fund local tourism-related expenditures of Council, should fall exclusively on just one segment of the beneficiaries of such expenditure is manifestly “unfair”. For the whole body of district residents and ratepayers … albeit to differing degrees, receive some benefit from tourism related activities.
All should therefore contribute something, toward Council’s operational, promotional and infrastructure tourism costs. How best to achieve this fairness is in question, as are the objectives of administrative and taxation policy efficiency and practicality.
The specific topic of a bed tax has been aired widely already and is not covered in any detail here for this reason. Proposed bed tax variants include suggestions ranging from a tax on all tourists at the international border, to setting local sales taxes. Many of the particulars of these and other such schemes have been canvassed. Each suggestion has both merit and downside. Most often, their intrinsic complexity and the sheer number of their variants count against them all.
For instance, a border tax catches all tourists and is relatively simple to impose. Although it works well on this collection side, it is otherwise very complex, even impracticable and arbitrary when it comes to correctly making reimbursements back to Councils. A central government-levied border tax, while it can be used to fund (subsidise) local tourism infrastructure projects, as a direct tax, fails also the test of proximity, its imposition cannot be shifted to others and, it lacks any connection to the cost of providing the service.
So far so good, apart that is, from the fairness issue. This could be dealt with, given the adoption of a key (and innovative) suggested mechanism, one designed solely to achieve fairness and central to bed tax funding of Council tourism-related expenditures.
Fairness can be achieved with the introduction of a fairness rebate, a rebate to be paid to qualifying and GST registered accommodation providers, according to the level of their provision of tourism related services as administered using the normal GST returns procedures.
When implemented, the rebate would have the merit of addressing the issue of compensation for accommodation providers who, without any rebate, would unfairly continue to be liable for the full weight of any proposed … and unmoderated bed tax.
The value of a rebate mechanism is its principal benefit of achieving fairness, added to which is the fact that it would be part of an existing proven collection method, (the GST system) which is both well understood, feasible and efficient.
In summary, a suggested comprehensive, fairness rebate inclusive bed tax scheme, one directly related to local Council based tourism expenditure funding, must include all of the following features:
- Establishment within the scope and capacity of the existing New Zealand-wide system of charging GST, a targeted tourism-based bed tax as a separate identifiable taxable activity element of the GST tax base, introduced and administered by central government on all New Zealand registered short stay tourist accommodation providers.
- This addition to the GST tax base thus provides the tourism-specific mechanism within the existing GST system, for both the charging of a bed tax and by providing the means of distributing a bed tax fairness rebate to those charged with the tax … spreading it to those who benefit from tourism but whom incur no taxation cost.
- The rebate would be set at a rate designed to recognise the need to spread bed tax costs to all members of the community … including levying those who, at least to some degree, have benefited from tourism activity in their local areas.
- The rebate, administered within a modified GST system, would preclude the need for each individual Council to set up their own system of collection. It would also provide the means by which an appropriate level of compensation can be made to accommodation providers as a rebate of the bed tax they alone have paid. This way, they will not be unfairly singled out as the only service provider to tourists in the community who are levied with a tourist (bed) tax.
- Registration for the rebate is straight forward, as all providers can be uniquely identified within the normal GST system as GST registered for tourism (bed) taxed short term accommodation providers.
- In addition, the systems integrity is further reinforced, as Council registered accommodation providers will have already been identified, via local Council rating information data bases, as bed tax liable providers, according to their land usage and tourism-related activities as recorded.
- A GST-rebate registration process would include an ability for both levels of government to qualify tourism providers who have been levied with a bed tax, thereby providing them with an entitlement to their proposed “fairness rebate” … a rebate set at a level that recognises all of the community-wide costs and benefits of tourism activities. Cross checking of these details will add to its collection certainty.
- It is worth noting that the addition of a rating mechanism within the existing central government GST-IRD collection system, does not represent any change to the “no exceptions” rule for our New Zealand approach to GST policy.
- The imposition of GST on “all” taxable goods and services is unchanged but would now include within its GST taxation net, an indirect consumption tax on all goods and services supplied to tourists … as well, as mentioned, providing a readily implementable and efficient vehicle for the rebate of a fairness dividend being the essential equitable compensation to those levied directly with the bed tax.
- The present tourist accommodation providers legitimate fairness gripes would soon dissolve as a result.
To conclude: Use of the existing GST system to facilitate the imposition of the short- term tourist bed tax, has the benefits of simplicity, administrative efficiency and most importantly, of fairness.
As an alternative to a multitude of and predictably a complexity of local Council administered bed tax schemes, the solutions as suggested are sensible … hardly “radical” as might first have been supposed.
They most definitely are both rational, workable … and above all else, … fair.