Frequently Asked Questions
The following is a selection of Frequently Asked Questions, and responses, regarding the proposed Visitor Levy:
We understand that the IRD uses Generic Tax Policy Processes when implementing or amending taxes and this process can preclude sector consultation at the early part of the design process. Could QLDC please advise which stage of the Generic Tax Policy Design Process IRD has reached and/or how stakeholder consultation has occurred/will be undertaken as the new tax is developed. Note: We are making the assumption that a levy design is handled the same way as a tax design? This may or may not be true, if not true, then what is process is followed for a levy?
- Tax policy design generally goes through the generic tax policy process (GTPP). This involves a number of steps resulting in consultation with interested parties.
- The visitor levy is not yet government policy and can be considered as very early in the design part of the process. We understand that should the community support the proposed levy, government will then consider whether to implement it.
- Should the government seek to implement the proposed levy, we would expect it would go through the normal GTPP process that will include publicly issuing a discussion document and seeking feedback before it introduces legislation.
What process was used to determine the model proposed (a 5% levy on short-term accommodation) and what taxation models were actively considered/why? Who did this work? The group is keen to understand as part of the response to the following questions;
A working party consisting of central and local government officials, supported by independent tax specialists and other consultants, was established in late 2018 to consider the options and make a recommendation. An analysis of international examples of visitor taxes/levies was completed and consideration was given to the following tax models:
- GST revenue share
- A share of the proposed international visitor conservation and tourism levy
- Airport charges
- A local fuel tax
- A bed tax – fixed
- A wide-base visitor levy
- A narrow-base visitor levy.
The 5% has been adopted following an analysis of the current ten-year Long Term Plan, and an assessment of visitor-related costs. Our initial analysis suggested an 8.3% levy would be required to cover all costs and 5% was selected to reduce the impact while still covering the core capital costs. However reducing the percentage will affect the degree to which the existing differential rate can be reduced.
Any final rate will need to be determined as part of the legislative programme.
The accommodation sector been targeted, rather than a more broadly based levy that recovers across a wider base, which could lead to reduced price-to-buyer per business. Why were the large activity providers (using a specified turnover threshold) not considered as a collection agent as well as accommodation providers given the size of their turnovers. This is seen as the preferred option by this group.
The accommodation sector has not been targeted; under any base scenario (wide or narrow), we see that the accommodation sector as having a role to play in collecting the levy. There are clear advantages of having a wider base depending on the size of the wider base and the possible reduction this would allow in the levy rate. However analysis suggests the proposed levy should be based on short-term accommodation (and non-voluntary fees) only. This was on the basis that:
- Accommodation charges are primarily incurred by visitors, not locals.
- Accommodation within the QLDC area cannot be easily substituted to avoid the levy (Cromwell is the closest alternative at a one-hour drive).
- It is reasonably clear to define the base and the definition of short term/long term is already legislative defined (in the GST Act).
- The proposed levy would be shown as an additional charge and intended to flow through to the end consumer.
- The ability for providers to comply should be reasonably straight forward (the most difficult issues would appear to be system changes and non-GST registered suppliers albeit the proposals for intermediaries may address part of this).
- The accommodation base has advantages in being easily enforceable.
Applying the levy to a wider base raises considerable complexities and therefore was not advanced. For example, levying charges on activities would require this to be defined (golf?) and activities are not necessarily limited to the QLDC geographic area. Overall the proposed levy is designed to be fair and efficient in terms of linking the tax to the expenditure incurred by tourists with compliance costs and effect on locals kept as low as possible.
Why were road user or airport charges (targeted visitor tolls) not considered?
No detailed consideration was given to a road user charge because they would also apply to residents and thus would not be targeted at tourists who generate the additional demand for infrastructure investment. Initial consideration of a fuel tax was discounted given the effect on the residents. It was not considered to be feasible to apply additional airport charges especially noting that residents frequently use the airport and that many visitors to QLDC do not come by plane.
Some accommodation providers are concerned about the economic impact of a 5% price rise on the accommodation sector and believe that due to price dynamism (in B2B and B2C markets) they will need to absorb some or all of the proposed levy for some periods. This burden is not shared by other providers of tourism services in the region and this is felt to be unequitable. How was the economic analysis undertaken to model this impact on the economy in the region and on the accommodation sector (and related sectors)? The providers view this as important, not just from the perspective of reducing income to accommodation providers (with the flow on effect of reducing the value of their businesses), but in terms of maximising the tax take.
The analysis undertaken suggests that it is reasonable to conclude that most of the costs of the levy will be passed on to tourists just as most GST is passed on to consumers. It may be argued that hotels, etc. are already charging what they can so that any extra charge will need to be borne by the hotel operator. However, the proposed levy has been designed to apply to all possible forms of accommodation. If a hotel simply increases its charges in isolation it is likely to be under-cut by a competitor. However, if the competitor faces the same cost increase (the levy) it will also be required to increase its charges leaving the levy competitively neutral in its application. Conversely if one competitor drops their price to gain an advantage then that might occur. The intention is to ensure the levy is a visible additional charge to avoid the risk of this behaviour. The levy would likely to be borne by accommodation providers (and not tourists) only to the extent that visitors choose to stay outside the QLDC area (although the evidence is that most Queenstown visitors stay overnight in Queenstown). It is possible that some visitors may choose not to visit the QLDC area at all as a result of the levy which seems unlikely given the proposed low percentage of the levy and the pre-eminent role of the district in the national tourism economy.
A number of studies have been undertaken globally to assess the effect of a levy on the accommodation sector in locations such as Hawaii and 22 cities throughout the USA. These have found that on average there was little reduction in demand. These also demonstrate that the more desirable the location, the lower the effect of any price sensitivity, and we believe the visitor statistics demonstrate the high desirability of the district as a destination.
Of greater concern to demand would be the effect on the accommodation sector of under-funded and underperforming infrastructure across the district. In other words, a poor visitor experience is likely to have a far greater effect in reducing demand for the accommodation and wider tourism sector than a small increase in price.
It’s also worth remembering that the proposed 5% levy would not happen in isolation and any effect on a providers individual demand would also be in the context of new hotels increasing competition and increasing use of peer-to-peer online platforms as an alternative form of accommodation.
Can you please provide a high-level description of how the $22.5m target was reached? What numbers are used in this calculation? The modelling cannot be replicated by some members of the group, using their industry data.
Estimating the size of the base for the proposed levy was an important task for the working group. We engaged a consultant to undertake this work as multiple data sets had to be interrogated to gain a comprehensive and confident picture. To ensure that our estimate of annual accommodation revenue from the QLDC area was robust, three separate calculation methods were undertaken:
- Bottom up: $483M
(No. of Stay units x Average accommodation spend per night)
- IRD adjusted: $462M
(Accommodation GST data for the district from IRD + estimate of providers not included in IRD data)
- MBIE MRTE : $407M
(MBIE MRTE accommodation annual turnover)
The average of these three calculation methods is approximately $450M which we have used as our base. Note that each of the three methods above included an adjustment to remove non-accommodation spend (e.g. food & beverage).
The analysis undertaken has been reviewed by the Crown as has the calculation used to apportion the visitor spend and we are comfortable with the figures used.
Will Airbnb providers who are not registered for GST be required to pay this tax, how will this process be managed by IRD/Airbnb and does this present any additional challenges for IRD?.
Intermediaries such as Airbnb will account for the charge for all accommodation providers that use their service regardless of whether they are registered for GST or not. The feedback from the intermediaries who have been consulted was that this will be achievable assuming they have sufficient lead time to update their systems.
Are small business owners who are not filing income taxes for Airbnb expected to comply, e.g. those who fall under the threshold for renting out parts of their home?
- The intermediaries such as Airbnb will account for the levy regardless of whether the small business owners are filing tax returns (for example, due to the legislative exemption from the mixed-use asset rules).
- If a small business is not using an intermediary and they provider accommodation for a profit, they will still have a liability to file and account for the proposed levy.
For providers who are using national or proprietary billing software that does not allow the addition of a new local tax to be applied, or applied correctly, will they be assisted in any software customisation costs?
We are unaware of situations where the government has provided any assistance when they change tax laws that require system changes. It has also been acknowledged there will be a compliance cost in changing systems to be able to charge and account for the levy. If implemented, there will be a long lead time before the start date of when the levy applies. To date accommodation providers have said that changes will be able to be made assuming they have sufficient lead time.
Will the tax be applied to the consumer after, or before, online travel agent commission?
The fee that will be subject to the proposed levy will be the accommodation charges plus any mandatory charges (e.g. cleaning charges, etc). If the online charges are also charged to the customer, then they would appear to be a mandatory fee and subject to the levy. If the commission is deducted from the fees charged to the customers then the commission is not directly subject to the levy, but of course the gross fee charged to the customer is subject to the levy. With a levy rate of 5% and a commission of say 2%, the additional levy due to the commissioner will be 0.1%.
Concern was expressed that the levy would need to be incorporated into the room rate.
Nothing in the GST Act of the Fair Trading Act requires something such as an accommodation levy to be incorporated into the price, although the full cost, i.e. accommodation plus levy and GST, must be shown.
In some jurisdictions bookings sites refer to additional charges (such as levies and city taxes) to be levied at the destination. We expect the objective here is to be explicit about these and to disclose the rate at which they are charged.
Concern was raised that many commission-based contracts are negotiated up to 18 months in advance.
The advice we have received is that any levy would not be able to be designed and legislated before mid-2021. This is a preferred date by Council as it ties into both our Long Term Plan cycle and the beginning of the financial year. Any actual date will be determined by the legislative timeframe.
Is the levy being used to recover costs that should be attributed to the growth in the district’s population?
The work that we have completed has considered all of Council’s capital costs and operational costs, and has carefully apportioned the degree of visitor effect. In developing the levy we have continued to maintain other relevant forms of income such as NZTA subsidies, other grants, and development contributions. The latter in particular ensures that infrastructure and natural growth is paid for by developers to the extent that the demand is generated by growth. Our total capital costs exceed that due to the impact of visitors on our economy.
Why can't we receive additional GST return?
The 'no GST' is a reality. This is a long-held position by the Treasury and multiple governments including the current one. This may be a position held because if they ever do share any GST it could be the 'thin end of the wedge' to revenue sharing. The Mayor and this Council have put this case to government, as has agencies such as the Tourism Industry Association. However, it is because the government recognises that QLDC is a special and unique casethat we have been given the opportunity to test the proposal for a levy through the referendum. This is unprecedented in Aotearoa New Zealand (excepting Rakiura Stewart Island which has a levy for very different reasons).