Bed tax: Will it just add insult to injury?

Leicester Gouwland of accountancy firm William Buck Christmas Gouwland, examines the consequences of a possible bed tax.

Recent calls by Mayor Phil Goff and large businesses for a bed tax to be introduced, provide food for thought. Four large businesses recommended that a 2 per cent bed tax be introduced to pay for tourism infrastructure. But will it be more hassle than it’s worth?

I am not at all adverse to user pays charges, and charges for the use of National Parks and for car parking are sensible. But a bed tax will impact accommodation providers significantly. And not in a good way.

For a start, they will need a system to collect the tax, and if returns are due monthly, this is more often than GST returns.

Perhaps the biggest loss to accommodation providers will be the loss of profit. This is an industry where price points matter. If a customer only wants to pay $100 a night, they only want to pay $100 a night. Therefore, the tax will effectively be paid by the business.

For example, an accommodation provider earning $400,000 in revenue would, with a 2 per cent bed tax pay $8,000 a year. For most motels owners who make little enough income as is it is for the work they do, this tax will be unpalatable.

If a bed tax is to be applied it needs to apply in all instances. So, cruise ships, home stays, billets, staying with family and friends, all need to charge the same tax.

However, what if accommodation is provided for little or no value? A percentage would not fairly reflect the consumption of services.

A rate per person would be fairer. For instance, two people could be sharing accommodation which is the same price as for one guest.

Where several services are bundled, how should we decide how much is accommodation and how much is food in a bed and breakfast? Hotels offering accommodation with a free breakfast could instead offer breakfast with free accommodation.

With accommodation, there are numerous services provided such as internet or pay television included in the accommodation charge. Will accommodation providers now have to separate these out and charge for each individually?

If GST is added to bed tax, that just adds insult to injury.

It’s possible to use an existing system and increase fuel taxes. Tourists will effectively pay the fuel tax through their consumption of services such as taxis, rental cars and vans, airlines, buses, and ferries. That way domestic tourists who use infrastructure but not accommodation, pay as well.