Prices for accommodation, meals and attractions in Iceland could be given a price hike as the government announced an 18.5% VAT increase.
The proposal from the Icelandic government would boost VAT from 7% to 25.5% from 1 May 2013 and will bring around problems for tour operators featuring the destination for next year.
“This tax rise is being introduced at the start of the inbound tourism season, just when it will do the most damage. It penalises any operator who has signed contracts and published brochures featuring Iceland next year. No company can absorb such a surcharge,” explained Tom Jenkins, chief executive of European Tour Operators’ Association (ETOA).
“What is strange is that Iceland has been a text-book example of the virtues of cutting indirect taxation in tourism. In 2007 it halved tax on tourism services from 14% to 7%. By 2008 tax receipts from tourism were 6% higher than they had been in 2006,” he added.
Tourism in Iceland has continued to rise in recent years, with 2011 and 2012 set to see 16% rises year-on-year.