Global Forces Shaping International Tax Policies

The global political and economic landscape is in constant flux.  Though no single event can be predicted with certainty, there are macro-level trends shaping every dimension of modern life.   These trends affect the Travel & Tourism industry, and the scope of this impact reflects its significance and linkage to the changing global scene. This section briefly explores these issues and their possible implications.
 

Regional Trade Agreements

The Single European Act of 1987 and the North American Free Trade Agreement (NAFTA) are historical hallmarks in the global trend toward regional economic integration.  Leaders of the Pacific Rim countries have also formed the Asia Pacific Economic Cooperation (APEC) group in an effort to liberalize regional trade and investment policies.  In addition to removing physical and technical barriers to trade, attempts are also being made to coordinate fiscal, monetary, and social policy.  Fiscal and social policy harmonization must be monitored to insure that Travel&Tourism is correctly considered in the decision-making process and is given equitable treatment.  

Unfortunately for Travel & Tourism, the industry was considered, but did not receive equitable treatment in the case of NAFTA.  Under the U.S. government's NAFTA funding mechanism, immigration fees were raised on Canadian, Mexican, and Caribbean visitors to make up a budget shortfall created by the loss of previous trade revenues.  In this case, not only did the funding mechanism contradict the intention of NAFTA- to encourage free trade for all industries including Travel & Tourism- but it failed the First Principle for Intelligent Taxation- Equity: all economic sectors should be treated fairly in regards to taxation.
 

Emergence of Service Economies

Erosion of traditional components of national and local tax bases will force policymakers to target the service sector as a source of additional revenues.  The rationale for an imposition of such taxes must be monitored to guarantee Travel & Tourism is not excessively burdened. 

In 1992, services comprised approximately 57% of total personal consumption in the United States.  As service consumption has increased relative to tangible goods, state lawmakers have increasingly factored business services into the sales tax base.

Travel & Tourism related services have not been excluded from this trend.  In many cities, the hotel room tax has increasingly been used for general fiscal purposes such as reduction of state budget deficits and funding social welfare programs.  When used for these purposes, the tax essentially becomes a general sales tax on business services.
 

Emergence of Developing Countries as
Forces in the Global Economy

The rapid economic growth of developing countries, especially in the Pacific Rim, will place increased pressures on the Travel & Tourism infrastructures of those countries.

Expansion and development of public projects to support traveler and tourist flows will likely place Travel & Tourism in the middle of the public finance debate.  Efforts must be made to help policymakers in the development of fiscal policies that will achieve Travel & Tourism development objectives without impeding the competitiveness of the industry.

Many of the developing countries of the Pacific Rim have imposed relatively high departure taxes.  The highest reported tax is at Kai Tak in Hong Kong where the tax is HK$150.  Little, if any, of the revenues from this levy are used directly for Travel & Tourism development.  Although not as high as the Kai Tak rate, other cities such as Jakarta (HK$68), Seoul (HK$72), and Manila (HK$83) collect taxes which are seldom used directly for Travel & Tourism infrastructure improvements.

Travel & Tourism demand has historically kept pace with, or exceeded, industrial output growth.  Between 1991 and 1994, the industrial output of developing countries is expected to grow by 22% (compared to 5% for the industrialized countries).  If Travel & Tourism keeps pace with this growth rate, the infrastructure of these countries will become increasingly overburdened. Unless efforts are made to direct tax revenues to Travel & Tourism infrastructure, the developing countries will not be capable of attracting and retaining global market share.
 

Growing Global Concern
for the Environment

Growing concern for the environment has focused attention on the growth and development of the Travel & Tourism industry.  On one hand, Travel & Tourism may be seen to have a negative impact with increased numbers of visitors to sensitive areas.  On the other hand, Travel & Tourism is not a smokestack industry and has enormous potential for raising environmental awareness.

However, in recent years, policymakers in environmentally sensitive areas have considered the imposition of border taxes or special tourist taxes to offset the ill effects of Travel & Tourism and to curb tourist flows. Policies must be developed to insure environmentally compatible development is achieved with sound and rational fiscal objectives.

Worldwide Shifts in Labor
Supply and Demand

Regional economic integration has stimulated a mass inter-regional migration of labor.  Simultaneously, new regions of the world have become more readily accessible to tourists and travelers.  This has created regional sinks and pools of skilled labor for the Travel & Tourism industry.  Travel & Tourism’s ability to generate jobs for large numbers of people will undoubtedly benefit these regions where labor is in excess supply.

The overall effectiveness of Travel & Tourism as an employment generator can be enhanced by fiscal policy which encourages investment in human capital and facilitates the development of a skilled Travel & Tourism labor pool.
 

Growing National Budget Deficits

Many industrialized nations are faced with growing fiscal deficits at the national level.  Germany, Japan and the United States have recently undertaken major tax reform initiatives in an effort to reduce deficits.  The effects of these initiatives have been twofold. First, in the search for potential revenue sources, governments have increasingly focused on taxing Travel & Tourism.  Second, local governments have received less revenue sharing funds from the national level and have focused on taxing Travel & Tourism to compensate for these losses.

For example, at the time of writing, the United Kingdom has proposed a £5 departure tax for flights deporting the UK to destinations in the European Community, and a £10 departure tax for destinations outside the EC.  The projected revenue from the discriminatory tax (approximately £330 million) will be used to reduce a central government deficit of approximately £50 billion.  Other discriminatory budget balancing proposals in Scandinavia and Australia were recently rejected.

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Issues in Tax Policy 

• Foreword/Preface
• Economics of Travel & Tourism Taxes
• Tax Theory/Principles of Intelligent Taxation/Key Issues
• Tax Policy Guidelines/Global Forces Shaping International Tax Policies
• Travel & Tourism Taxes: A Reference Guide
• References

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