Category Archives: economic instrument and tourism

What Extent We Can Rely on Tourism Forecast?

By Dripto Mukhopadhyay

In research fraternity, forecasting is always known as “Thankless Job”. The reason being it is one of the most difficult exercise since forecasts depends on large number of assumption about future over and above the assumptions involved in the econometric modelling itself. Being fortunate enough to work on forecasting relating to various sectors ranging from petroleum demand to luxury car to carbon emission, I know the amount of effort and skill goes behind any forecasting exercise, if it is a serious business. Even after that, many of the times the researcher find their forecasts off the target extensively mostly because of externalities. At times I feel that except a “Fortune Teller”, no scientific researcher ever can guarantee about the forecasts. The forecasts can change drastically because of small amount of change in any of the multiple assumptions goes into forecast because of macro-scenario in a dynamic world.

However, a researcher always wants to understand how his forecasts are matched with actual scenario after a few years of the forecasts were made. I did a forecasting for foreign tourists arrivals to India in the year 2008-09 for Indian Institute of Tourism and Travel Management (IITTM) as a consultant. The paper was published later in the “Indian Tourism Statistics”, the only government publication on tourism statistics of India. The forecasts were made from 2010 to 2014. Since recently the latest Tourism Statistics published for the year 2015 contains data for 2014, I felt like matching the accuracy of the forecasts I made in 2008.

The research paper covered 6 countries and all the regions of the world. The data used was various macro economic parameters, household disposable income and certain dummy variables relating to policy and other localised incidences like terrorism etc. The comparison between forecasts made in the year 2008 and the actual foreign tourists arrival to India. The details of the accuracy level of the forecasts is given in Table 1. Country-wise details and region-wise details are given in Table 2.

For any secondary data collected in a large scale and at a macro level, it is always considered that results are extremely accurate if lies within plus/minus 10% deviation level. An accuracy level till 85% (where the deviation is plus/minus 15%) is considered as acceptable for any valid decision making purpose. The numbers presented in Table 1 provides the details of forecast numbers from 2010 to 2014 for all countries and regions covered under the study. It suggests that 62% forecast numbers in the study is extremely accurate when compared with the actual FTA (Foreign Tourist Arrival). If we consider the acceptable limit with 85% accuracy, it goes up to 77% of the forecasted data points. Overall, this results suggest that FTA forecasts made in 2008 was fit to the expectations out of any forecasting exercise. Keeping in mind the global economic recession during end of 2008 and the continuing volatility of the global economy, these results suggests that decision making and policy making can depend on forecasts to a large extent if the methodology used is robust.

Table 1: Details of Accuracy Level of Forecasts

(Forecasts made in Year 2008 for the years 2010 to 2014)

Forecast VS Actuals

Accuracy level

% Forecast points

On target 100% correct

34

Highly accurate More than 90% accuracy

28

Acceptable Accuracy level 85% to 90%

15

Low on accuracy Accuracy level less than 85%

23

Table 2: Regions and Country of Details of Forecasts and Deviation of Actual Foreign Tourists Arrivals to India

forecast summary

First Time a Prime Minister in India Identifies Tourism as an Instrument to Boost Local Economy

August 15th 2014, should be marked as an important day for the Indian tourism sector. It is not because there is a new toruism policy declared since 2002, nor beause of some bold and innovative steps taken by Ministry of Tourism of Indian Government. It is simply because the new prime minister Mr. Narendra Modi’s speech on the eve of India’s Indepence Day ceremony acknowledging the potential role that can be played by tourism activities in generating income and alleviating poverty at the local level. This is one of the simplest common sense, yet unaddressed by any past prime ministers of the country in any occassion as far as I remember.

Mr. Modi has exactly mentioned the grass root level linkage of tourism sector that needs to be harnessed for a sustainable toruism development strategy in the country. His words that captured implications of tourism development for a tea stall owner, petty service providors and the similar ones are the most cricual ones. A sustainable roadmap of tourism sector is always envisaged in the form that generates income and employment for local comminity and local economy. The strong multiplier effect of tourism automatically starts turning the unturned stones of development once these acticities are started at the local level.

This is nothing new to anyone involved with tourism development in some way or other. The major problem faced till now was that the tourism officials were more concerned about how to increase the number of foreign tourists instead of domestic tourists. Recognizing the fact that only 2% of the total toturists arrivals are of foreign origin and 98% are domestic, one fails to understand why we ignore dmestic tourists and concentrate more on foreign tourists. Perhaps it is time that we focus on developing domestic tourism also without taking it for granted. Increasing the number of domestic tourists will boost local economic development much more than that can be harnessed from foreign tourists. However, a few cautionary steps must be taken to develop a sustainable tourism across destinations:

1. Awareness generation amongst domenstic toruists to conserve and protect environemnt and destination which is perhaps completely missing at present.

2. Importance of maintaining cleanliness and respect the local culture while harnessing maximum pleasure from tourism

3. To prefer eco-friendly modes of travel/activities rather than those that increase carbon footprint in the region

Local authorities need to play important role in this. It cannot be expected that behavioural characteristics the the travelers will change automatically as desired for sustainable tourism development. The destination management should be in suach manner that the tourists are made to follow the rules strictly, else penalised severely, so that over a time the scenario changes towards a more disciplined tourism sector in the country. Large number of countries in the world are examples of creating such environment over time. The major role played was by governance than anything else. Hope, the new prime minister’s views to connect the grass root level to tourism activities will be translated into some changes in policy making of the authorities who are at the helm of decision making at central, state as well as local level.

Measuring Tourism’s Role at Micro-level Development in India

By Dripto Mukhopadhyay

Tourism is undoubtedly a booming industry in India. Especially, since early years of the previous decade, India has become a better known destination to international tourists. Even number of domestic tourists have also increased significantly. Government statistics suggest that foreign exchange earnings have increased significantly, number of hotels have gone up tremendously, number of countries form where we receive inbound tourists also have increased promisingly. Along with these statistics, macro level studies such as Tourism Satellite Account (TSA) 2003 and 2009 showed large scale positive impact of tourism in terms of income and employment generation in the country.

While logic and numbers are in favour of suggesting that tourism is playing a significant positive role, lots of stories in social media also pave the idea towards believing that initiatives are taken at micro level to change tourism landscapes and structure. This is also true that in India now home stays are available, we find tour operators offering specific packages, a good network of tour operators with bigger companies such as Makemytrip.com, Yatra.com, and several similar ones. large companies have expanded their business from ticketing to tour packages, from flight booking to bus booking etc. These evidences does not leave any space that Indian tourism sector is growing with a faster pace and also moving towards more organized in nature which was previously completely an organized one.

However, none of these talks of the fact that whether we have been able to associate tourism activities with local level development. As such I did not come across any study that even investigated this issue at all. From sustainable tourism development point of view, it is of utmost importance that the link between local economic development and tourism is established while conserving local environment, both physical and cultural. Right in this particular blog, I do not intend to talk to talk of any numbers or statistics that justifies any view in favour or against the belief that tourism is gradually leaving an imbibed impact on local economic development. There are certain reasons behind, rather personal experiences, why I am raising this question. While travelling in tourist destinations, well known and lesser known, I do not see much involvement of locals in tourism related activities. If it is there, mostly at the petty worker level. I find the observations made by large number of research studies relating to developing world that tourism still does not play any role in redistribution of resources across population, are still true. Investments are still being made in the destinations either by local rich or people external to the place. Still earnings from the destination is not reinvested in local level development, rather being siphoned from the place where it is generated. But these can rarely be captured from macro-level numbers that most of us look into while trying to measure tourism impact.

Studies are needed to capture in a manner that clearly brings out correlation between tourism’s direct and indirect impact on local level development. This needs to be done with village level, town level, block level data rather than with all India figures or state level figures. It is also important to identify indirect impact of tourism development, in the sense, infrastructure development relating to tourism activities and its impact on local economic and social development. I will start with any particular destination, preferably well known, so capture this at the earliest. Working on correlating tourism activities with development parameters of the area, including peripheral geographical spaces should provide certain ideas how these two are linked at the micro-level.

Hotel Industry in India – Some Correlates between Prices and Macro Economic Issues

By Dripto Mukhopadhyay

Hospitality has become one of the major businesses in the India. Large number of international brands has entered the sector in recent times. The sector has been marked with increase in number of premium segment hotels in different parts of the country, along with smaller ones that cater the need for the middle class and lower middle class domestic tourists. In this particular blog, I would restrict myself in highlighting a few crucial attributes of the hospitality sector in India and some of the consequences thereof.

To start with let’s look at some of the macro economic indicators relating to hospitality sector. As obvious, hospitality sector includes hotels and restaurants. Though apparently this should include informal sector also, as the norm goes in national accounting system, data pertaining to this sector majorly reflects the trend of the registered sector because of sheer nature of the sector. Gross Domestic Product (GDP) relating to hotel & restaurant sector is presented in Figure 1. The visual presents the GDP of the sector at 2004-05 prices and the share of hotel and restaurant sector to total GDP of the country from 2000-01 to 2011-12. It is evident from the graph that hotel and restaurant sector GDP has increased to 3 times during the last decade starting 2000-01. It showed a gradual increasing barring the period 2008-09 and 2009-10 as the period was marked with global economic recession. However, the share of the sector in total country GDP rose till 2007-08 significantly and since 2008-09 suffering a dip followed by a stagnating share. This is a reflection of happenings in the world economy as well as of the Indian economy. Though apparently India recovered quickly enough from the recession, due to some of the fiscal measures by the Central Government, but the recovery was quite brittle in nature. It has become evident from high GDP growth registered soon after 2008-09, but poor GDP growth during last couple of years. Poor performance of industry sector, majorly due to reduced demand from domestic market, led the slow down.

However, investment in hotel and restaurant sector was not hampered by timid GDP growth during recent years. Gross Fixed Capital Formation (GFCF) in hotel and restaurant sector and its share in total GFCF of the country is given in Figure 2 below. There was a steady growth in investment in this sector, especially since 2003-04. The momentum dampened a little during the year 2008-09, but picked up again and has shown steep growth. The red line in the graph Continue reading

Price Index for Hotel Industry in India

By Dripto Mukhopadhyay

Whenever someone wants to work on estimating tourism demand or look into issues related price impact on tourism, price of accommodation is a crucial one to incorporate in analysis. In India lack of any time series on accommodation prices was a serious bottleneck for researchers who wanted to look into these relationships. Measuring price sensitivity is crucial for predicting tourism behaviour, be it domestic or international or for any specific country per say. This article tries to bridge that gap in a systematic manner through constructing a Hotel Price Index (HPI) for India. This HPI has taken care of different categories of accommodation also. In general, hospitality service providers are categorized into following by ministry of tourism as well as well accepted among the industry players:

  • Five star deluxe
  • Five star
  • Four star
  • Three star
  • Two star
  • One star
  • Heritage
  • Others

Heritage hotels have become popular during last decade or so. Whereas several other accommodation services are available currently, that cannot be categorized under anyone under star categories or heritage category such as service apartments, paying guest accommodations etc, which are clubbed under the category of others. An HPI at India level should represent all these categories and also should cover different corners of the country to be considered as a representative Index for hotel prices in India. The HPI presented in this article has used HVS data sets. Though HVS data is a robust one in terms of coverage, however, it captures information from 40 odd cities in India. Therefore, to some extent this HPI may be considered as slightly over-estimated one. The reason being hotels in remote areas, especially that are not well known tourist destinations, might have lower rates than that captured from the cities covered under the said survey. Continue reading

Weak Governance and Sustainability of Sustainable Tourism

By Dripto Mukhopadhyay

When we talk of sustainable tourism, a crucial question comes to our mind that have we achieved any success till now? This question is crucial since in several countries sustainable tourism or ecotourism or other forms of tourism that generally talks of similar objectives stated almost for a couple of decades by now. However, evidences suggest that if for the time being we keep aside other components of sustainable tourism and focus on the environmental aspect of it, it is quite a controversial topic. The reason being total carbon emissions from tourism activities in absolute term have been increasing unabatedly though it has declined to some extent on per capita basis. The primary reason for the Continue reading

How Taxation or Incentives are Used for Sustainable Tourism

By Dripto Mukhopadhyay

It is expected that by 2020 this figure would double with large increases in tourism activities in the world’s poorest regions. Studies suggest that tourism sector generates about 11 per cent of the world’s Gross Domestic Product (GDP) and creates more than 5.5 million jobs world-over every year. Being highly labour intensive, the sector provides vital employment for people with a wide range of skills as well as for the unskilled. These numbers themselves are adequate enough to suggest that tourism activities have immense potential to play a significant role in the economies of the countries and regions.

However, though tourism is a sector which generates large extent of revenue as well as employment, it is also an undeniable fact that tourism activities often have a significant adverse impact on environment in tourist destinations, including congestion and pollution. Conventional tourism activities lead to the dangers of dependency with non-local ownership, enormous pressure on utility and infrastructure supply, surge in price of the commodities, degradation of local art and culture, rise in crime rate, prostitution, spread as diseases such as AIDS among the local communities, large scale environmental degradation. These menaces affect the local community, environment and the society which, finally, severely leading to the tourism industry’s decay in the long run. These concerns have led to the emergence of paradigm of sustainable tourism in recent years, particularly as the numbers of tourists and the distances they travel have increased significantly over years. Such developments have experienced activities such as use of eco-labeling to activities and destination, for example the use of ecotourism, and the raising of taxes on tourism activities in order to control damages of the environment as well as to raise revenues to correct such environmental damage caused. This article is an attempt to understand the perspective of use of economic instruments for developing sustainable tourism development.  The article discusses the international experience regarding this as well as portrayed similar activities from Indian perspective.

Before discussing the economic instruments to foster sustainable tourism development, it is germane to have a clear understanding of the sustainable tourism activities. It has been widely accepted that poorly managed tourism can lead to:

  • Degradation of heritage sites
  • Commodification of the sacred
  • Create a market for prostitution and drugs
  • Reduce biological diversity
  • Destroy habitat for wildlife
  • Pollute lakes
  • Overuse valuable fresh water resources
  • Contribute significantly to global warming
  • Leads to loss of scenic beauty
  • Reduce the pleasure and satisfaction obtained from an un-spoilt environment

Experiences throughout the world suggest that poorly planned and managed tourism that fails to support its environment base, results in falling market share and sows the seeds of its own destruction. Environmental deterioration will inevitably lead to economic destruction, where the impacts of poorly planned and managed tourism development results in long-term problems that out-weigh the short term benefits that tourism may bring. With the potential for self-destruction achieving a more sustainable option is becoming the most important issue facing tourism.

Several definitions are in use to demarcate sustainable tourism activities from the normal tourism activities. The distinctions majorly arise from the differences in the definition of sustainability itself, and the obvious impacts on how certain sectors can be seen from the point of view of sustainability. In general, sustainable tourism development can be defined as equitable and self-sustaining tourism activities that can provide a unique visitor experience and an improved quality of life of the host community. In one of the most precise definition, according to Butler (1993), sustainable tourism could be defined as tourism “which is developed and maintained in an area (community, environment) in such a manner and at such a scale that it remains viable over an indefinite period and does not degrade or alter the environment (human or physical) in which it exists to such a degree that it prohibits the successful development and wellbeing of other activities and processes. This intrinsically implies that the tourism industry must ensure that tourist visits will be maintained and tourism resources will retain their attractiveness indefinitely. There must be no (or only minimal) adverse environmental, social and cultural impacts. All these must be achieved through maintaining the principles of sustainable development. The dimensions that are essential part of sustainable tourism are:

1)      Human dimension

  • Health and population – Physical and mental health, disease, mortality, fertility and population change.
  • Wealth– Economy, financial system, income, poverty, inflation, employment, trade, material goods, infrastructure, basic need for food, water and shelter.
  • Knowledge and Culture – Education, research, state of knowledge, communication, systems of belief and expression.
  • Community – Rights and freedoms, governance, institutions, law, peace, crime, civil order.
  • Equity – Distribution of benefits and burdens between males and females and among households, ethnic groups, and other social divisions.

2)      Ecosystem Dimension

  • Land – Diversity and quality of forests, farmland, and other land ecosystems, including their modification conservation and degradation.
  • Water – Diversity of quality of inland water and marine ecosystems, including their modification by dams and other structures, pollution and water withdrawal.
  • Air – Local and indoor air quality and condition of the global atmosphere.
  • Species and Genes – Status of wild species and wild and domesticated (crop and livestock), populations, genetic diversity.
  • Resource use – Energy and materials, waste generation and disposal and recycling. Pressures from agriculture, fisheries, timber, mining and other resource sectors.

Economic instruments

Generally economic instruments can be of two broad types, a) taxes and charges and b)financial incentives and agreements. The measure of taxes and charges works through factors, namely cost, price and income, which have long proven to be the major influencing ones on choices and decisions made by enterprises and consumers. These can be applied flexibly and adjusted readily. However, they are indirect instruments, and it is therefore difficult to be sure that the net effect will be that which was intended. Imposing taxes and setting charges can have two important consequences for the sustainability of tourism:

  • Changing the behaviour of consumers and enterprises, through affecting the prices, costs and income in a tourism destination or for a particular tourism product. Levying taxes and charges can be constructed so as to penalize unsustainable practice such as pollution, and to change the pattern of demand for a particular tourism product
  • Raising revenue from consumers and enterprises of a destination and using that revenue to mitigate impacts and support activities such as conservation of the micro-ecosystem or initiating community projects that lead to greater sustainability of the destination or the product. To ensure this, taxes should be constructed in such a manner that the revenue through these measures is restricted to specific types of use rather than simply going into the general public fund.

Financial incentives and agreements are economic instruments that influence the behaviour of enterprises by providing them with specific financial support or commercial opportunities. This may involve:

  • Providing financial support and opportunities themselves.
  • Influencing and working with development assistance agencies whose policies in recipient countries are increasingly influenced through priorities and programmes agreed with governments.
  • Influencing the financial decision making policies and actions of commercial sources of finance.

Tourism sector can be taxed with by taxing the business enterprises involved with providing services or by taxing the tourists directly. This can be done by either levying the general tax prevailing in the economic system or through imposing special tourism taxes. The World Tourism Organization identified a total number of 40 different types of taxes in tourism sector in both developing and developed countries. There are a few additional taxes relating to tourists’ use of natural environmental and general taxes are also there to add to the list. Out of a total of 45 taxes, 30 are payable by the tourists and 15 are payable by the business enterprises.

Tourism taxes can be categorized into five broad groups as given below.

  • Airlines and airports –
  • Road transportation and other transport related
  • Hotels and other accommodation
  • Food and beverages
  • Providers of tourism services

Significant increase in number of international and domestic travelers over the years, especially in the developed countries, has made this sector lucrative from taxation point of view. However, in many of the developing countries the trend is to tax the airports heavily since they do not have many airlines to impose tax upon. Hotel and accommodations sector is normally the most important revenue generator of the tourism industry and is also easier impose to tax upon. However, the practicalities of taxing the accommodation sector also varies between developed and developing countries and trends are found to be more problematic in the case of the latter. The hotel sector is often highly subsidized or receives investment and tax incentives from the government in developing countries, with the aim of attracting foreign and domestic investment to the sector. The motivation is twofold, first to expand the sector as a part of a policy to expand the tourism industry and second, to protect the sector because it is a relatively unstable one due to its highly seasonal nature. Road transport, especially, car rentals etc., food and beverages and tourism services are relatively easy to tax. But due to the fragmented nature of these sectors they do not normally contribute a major proportion of tourism revenue. They include such sectors as entertainments, handicrafts, jewellery and other souvenirs.

In many of the developing countries these activities form part of the informal sector or hard-to-tax formal sector. It is difficult to raise much revenue from this source. New tax regime has seen the introduction of eco-tax in several countries. This is specially to confront the degrading the environment both in developed as well as developing countries. However, in developing country levying this tax is still in its nascent stage. A component of eco-taxes related to ecotourism which is a relatively new form of taxation that destinations levy in an attempt to counter the environmental damage caused by mass tourism. Carbon tax and landfill taxes are more general environmental taxes on the level of carbon emissions and wastes respectively, but are borne by tourists as well. Apart from these taxes, gambling (in-shop and racing) related taxes are also common source of revenue though is not legal in some countries. Tourists are involved in gambling and casinos, and hence bear the tax associated with those activities. The tax can be levied on the suppliers rather than tourists as in the case of the UK where the betting tax that was initially levied on the gamblers is now levied on the gross profit of bookmakers.

Table 1: Tourism Tax Typology

Sl. No. Sector Name of tax Payable by
Entry/exit tax Resident departure tax/foreign travel tax Customer
Visa/travel permit Customer
Air travel Air passenger duty Customer
Air ticket tax Customer
Airline fuel tax Business
Airport/seaport/road borders Departure tax Customer
Passenger service tax Customer
Airport security tax Customer
Airport parking tax Customer
Transit taxes Customer
Trekking/mountaineering fees Customer
Hotel accommodation Bed night tax Customer
Bed tax Customer
Occupation tax Customer
Differential VAT tax Customer
Surtax Customer
Sales tax Customer
Service tax Customer
Turnover tax Business
Hotel and restaurant tax Customer
Temporary lodging tax Customer
Hotel accommodation tax Customer
Lodging tax Customer
Fringe benefit tax Business
Payroll tax Business
Customs and excise Business
Restaurant Sales tax/VAT Customer
Liquor taxes/duties Business
Road tax Toll charges Customer
Fuel taxes/duties Business
Car rental Municipal/local taxes Customer
Purchase duty Business
Petrol/diesel duty Customer
Coaches Purchase duty Customer
Specific additional tax Business
Tourist transport tax Customer
Visitor attraction Visitor attraction tax Customer
VAT/sales tax Customer
Training Industry training tax Business
Catering tax Business
Environment Eco-tourism tax Business
Carbon tax Business
Landfill tax Business
Gambling Betting tax Business
Casino tax Customer

Source: Adapted from WTO (1998)

Taxation on Tourism Sector: Some Example

Spain is one of the remarkable example is now accompanied by a certain interest in the application of specific taxes on tourist activity. Apart from normal accommodation tax and VAT on restautants, one can take the case of two taxes implemented in the Balearic Islands: the tax on rented cars, and the now-repealed ‘ecotasa’, a tax that seemed to combine the three objectives mentioned above: revenue collection, coverage of costs and internalization of the environmental costs. In Croatia the taxes most of the services related to tourism industry face are comparatively less than other goods and services. The VAT for accommodation, restaurants etc. is 10% compared to 23% on other goods and services. The comparative rates of VAT is given in Table 2. Its worthy noting the point that many of the European countries have reduced the VAT for tourism related services to considerable extent.

Table 2: VAT Rates Applied in European Countries as of 1st January 2010 relating to Tourism Related Services

Country

Standard rate

Reduced rate

Belgium

21

6/12

Bulgaria

20

7

Croatia

23

10

Czech republic

20

10

Denmark

25

Germany

19

7

Estonia

20

9

Greece

19

9

Spain

16

7

France

19.6

5.5

Ireland

21

13.5

Italy

20

10

Cyprus

15

5/8

Latvia

21

10

Lithuania

21

5/9

Luxembourg

15

6/12

Hungary

25

5/18

Malta

18

5

Netherlands

19

6

Austria

20

10

Poland

22

7

Portugal

20

5/12

Romania

19

9

Slovenia

20

8.5

Slovakia

19

10

Finland

22

8/12

Sweden

25

6/12

United Kingdom

17.5

5

                        Table 3: State-wise Luxuty Taxes in India

State/city Luxury tax on room (incidence in %)
Mumbai

10.0

New Delhi

12.5

Gurgaon

10.0

Noida

5.0

Hyderabad

5.0

Chennai

12.5

Pune

10.0

Bangaluru

12.0

Kolkata

5.0

Goa

10.0

Agra

5.0

Jaipur

10.0

Kerala

15.0

Table 4: Central taxes which also affect tourism

Type of tax Tax on Rate (in %)
Service tax Banquets

10.3

Conferences

10.3

Apart from the normal taxes, Eco tax is a policy that levies taxes to promote ecologically sustainable activities via economic incentives. The ‘Eco tax’ on pollution or pollution-causing inputs and outputs reflects the costs of using environmental resources and thereby internalize the negative externalities in decision making by producers and consumers. In other words, it is a way of translating the ‘polluter pays’ principle into practice. Since this approach of internalizing the externality is based on Pigouvian approaches developed by economist Arthur Pigou, this tax is called as Pigouvian tax. The revenue generated through Pigouvian tax should be spent on correction for positive externality.

According to an Organization for Economic Co-operation and Development (OECD) survey in 1997, there were 284 environment-related taxes and charges in OECD countries, of which 181 were in use in the European Union3. Where more than one third of the environmental taxes/charges account for motor fuels and other energy product; vehicle taxes accounted for 12 per cent of the charges.

Several countries in the world have introduced eco taxes. Balearic Islands is one of the prominent example of eco taxes. Almost 12 million people arrive on the Balearic Islands in Spain each year where the number of permanent residents is only 0.76 million. The tourists contribute significantly to the local economy, but there are social and environmental costs. The regional government wants to move to a more sustainable form of tourism and plans to finance its programme through levying a tax on hotel stays. From May 2002, tourists are charged EUR 1 per night as eco-tax on all hotel bills. The hotel industry was required to cooperate with the introduction of the new measure when it became apparent that the tax enjoyed strong support among residents. Tourists appear to agree with the aim of the tax once it is explained to them. However, the pressure of the hotel sector has led to a failure in its implementation.  A diving tax of EUR 2.30 per dive was levied in the natural reserve in Medes Islands of Catalunya, Spain. The territory of the Cinque Terra located on the coast of north-eastern Italy has established a sustainable tourism project to protect the culture, heritage and environment. In order to control tourist numbers, a Cinque Terra Card is provided which includes access to all paths, nature observations centres, botanic paths, picnic areas and bird watching areas. Tourists exploring the region can purchase a 1, 3 or 7-day card which also provides unlimited access to the train and bus between villages. The fee goes to protect the trails, marine and national park.

Though in India eco-taxes are applicable in case of several other industries to protect the environment, regarding tourism the concept is still relatively new. Some measures that could be put in place are increasing the tax on motor fuel to encourage people to use more energy-efficient cars, taxing the dumping of waste in landfill sites to encourage recycling and alternative ways of dealing with waste disposal are some of the cases which affect tourism industry also along with other target groups. However, a few initiatives taken by several state governments are examples of eco-taxes that are precisely targeted towards sustainable tourism. The Uttarakhand government has decided to introduce eco tax upon entry into the hill station of Mussoorie, also referred to as the Queen of Hills. This tax will be levied in line with the Naini lake tax charged from tourists in Nainital. The rate of tax is Rs 100 from heavy vehicles and Rs 30 from cars and jeeps that are levied by the Mussoorie Municipal Board. Taxes are levied in case of all the reserve forests as well as areas that are vulnerable to environmental degradation due to tourists’ movements. In Himachal Pradesh also green tax or eco taxes are levied in several places. For instance, the Shimla Municipal Corporation has decided to impose green tax on vehicles bearing registration numbers of other states.

Apart from these, in several destinations taxes are levied as entry fee. These fees are applicable for tourists, vehicles and sometime cameras.

Conclusion:

Tourist activity has been used as a taxable item in accordance with a wide range of formulas and circumstances. However, none of these formulas can be described strictly as tourist taxes, since nearly all goods and services used by tourists (hotels, restaurants, flights, car renting, etc.) are also used by non-tourists. A corrective tax leads to the inclusion of environmental and congestion costs to internalize within total cost of the tourism package, by way of a Pigouvian tax, economic efficiency might be restored. In addition, its effect on the quality of the tourism offer can be significant and this directly affects the tourist willingness to pay and, therefore, the magnitude of the added value of the sector. Furthermore, the tax can be used with a variable time profile, in order to avoid congestion peaks and de-seasonalize and control tourist activity. Nevertheless, one cannot forget that in case tourism in the destinations that are price elastic, taxes may have an adverse impact and provide opportunities to substitutes. However, another important consideration is that the tax collected as eco tax or green tax should be spent in the destination region itself to counter the environmental losses the region faces, otherwise it would only burden willing tourists to pay more without reaching any gain to local environment or the tourism phenomenon at that specific area.