What Is Tourism Tax? Who Pays it & How Does It Work?

Tourism Tax: All you need to know about it.

Recall the ticket price when you visit Taj Mahal or any other monuments in India. Have you ever wondered why you pay Rs.50 for the monumental visit whereas the foreigners pay over Rs.1,300? Foreign tourists are the major source of revenue for the Union Ministry of Tourism. Mainly the revenue comes from the tourism tax!

Tourism Tax: All you need to know about it.

Well, not just foreigners but we (Indians) pay tourism tax too! Be it hotels, hostels, resorts, vacation rentals, or any other accommodation. The price you pay for this stuff includes tourism tax. Basically, tax is everywhere around you ranging from purchasing a pen to buying tickets during tourism. 

So, in this write-up, we will discuss the top queries of folks like- What is tourism tax? Who pays it? How does it work?

Stay tuned!

(A) Synopsis of Tourism Tax

There have been recent developments regarding tourism tax. In Budget 2023, the government is considering measures such as no income tax up to Rs.7 lakh and discounted tourism packages to benefit the middle class.

Last year, Bhutan surprised everyone by jacking up its daily fees to a hefty $200, still a cool ₹1,200 for Indian tourists. But Bhutan’s not alone in this. 

Just a week ago, Venice joined the party, saying even day-trippers have to pony up €5 for entry. And now, Iceland is thinking about a daily tax, Thailand’s getting ready to hit tourists with a US$10 tax, and Bali plans to charge a one-time $10 fee for each visitor. 

The list is growing, with over 40 places already getting in on the action. 

So, why the sudden craze to tax tourists? Well, it’s all because flights are cheaper, social media screams YOLO and FOMO, and more people have the cash to scratch that travel itch. 

Additionally, Barcelona plans to increase its tourist tax in 2023, Valencia will impose a tourist tax in 2024, and Olhão in Portugal has already introduced a tourist tax in 2023. These are some of the updates in the news regarding tourism tax.

To understand what’s going on in the world of tourism tax, you need to understand the basics. Keep reading and you will understand the concept thoroughly.

(B) What is tourism tax?

What is Tourism tax?

A tourism tax, also known as a tourist tax or city tax, is a revenue-generating measure specifically targeted at tourists.

Sounds complicated? Let me explain in simple words.

The tourism tax is like a sneaky little fee that often lurks behind the scenes of your travel plans, especially when you’re booking a hotel room. Think of it as a small contribution you make to the city or region you’re visiting. Here’s how it works.

Let’s say you’re all set for a weekend getaway, and you book a two-night stay at this lovely hotel. Now, in addition to your ₹2,000 room rate, you might have to cough up, let’s say, a 10% tourism tax. That’s ₹200 for each night. So, for two nights, you’ll be paying ₹400 extra.

What happens to that ₹400? It goes into the city’s pocket to help maintain local attractions and streets, and, in some cases, support tourism initiatives. So, while it may feel like an unexpected expense, it’s a small way to give back to the places you visit and ensure they stay charming and welcoming for future travelers.

(C) Who pays tourism tax?

As the name suggests, tourism tax is a separate form of value-added tax that is mainly paid by tourists. The tourism tax usually targets overnight visitors. They pay it indirectly through accommodation providers and tickets.

It is a way to partially shift the tax burden to non-citizens or non-residents. It is just like travelers paying taxes for the development of your city. This feature lightens the tax burden on locals.

(D) Top 10 countries with highest tourism tax (Per Person Per Night)

RankCountryTourist Tax
(Local Currency)
Tourist Tax
(British Pound)
1MexicoMXN $224.00£9.15
Top 10 Countries with highest flat rate tourism tax

(E) How does Tourism Tax work?

As you have read above, Tourism tax is a financial mechanism employed by local governments to generate revenue from the tourism industry. This in turn supports a range of local initiatives and infrastructure improvements.

Let’s go through the steps on how tourism tax works-

Tourism Tax Working StrategyDescription
CollectionLodging providers (hotels, etc.) collect the tax.
CalculationTax is a fixed amount or a percentage of the rate.
PaymentTravelers pay at booking or during check-out
AllocationTax revenue supports local projects and tourism
Working Strategy of Tourism Tax

To understand the intricacies of how these taxes function, let’s break it down step by step-

(E.1) Collection

Lodging providers, such as hotels, motels, and vacation rentals, play the role of tax collectors. When a traveler books accommodation, the tax is seamlessly added to the total bill. This step ensures that visitors indirectly contribute to the destination’s upkeep.

(E.2) Calculation

The calculation of the tourism tax varies. It can be either a fixed amount per night, a percentage of the room rate, or a combination of both. For example, if the tax is 5%, and the room rate is ₹2,000, you’d pay ₹100 in tax. Alternatively, it might be a straightforward ₹100 per night added to your bill.

(E.3) Payment

The responsibility for paying the tourism tax falls on the traveler. The tax is typically either included in the total bill at the time of booking, where you see the final cost upfront or added when you check out of the lodging facility. It’s a transparent way of making travelers aware of their contribution.

(E.4) Allocation

The collected tax revenue doesn’t vanish into thin air. Instead, it’s channeled by local authorities to support various tourism-related projects. This includes maintaining public infrastructure, promoting local attractions, enhancing the overall visitor experience, and often investing in efforts to attract more tourists. The tax thus directly benefits the destination and its visitors.

In a nutshell, tourism taxes are a win-win scenario. Travelers contribute a little extra, typically without even noticing. This money goes on to support and improve the places they visit. These funds enable destinations to thrive, offer better amenities, and ensure tourists continue to have memorable experiences.

(F) Types of Tourism Tax

Let’s peep into the different types of tourism tax. However, you must note that this is generalized information that is found all around the globe.

Types of Tourism TaxDescription
Lodging TaxApplied to accommodations like hotels, motels, vacation rentals, and campgrounds.
Can be a percentage of the room rate or a fixed amount per night.
Sales TaxImposed on goods and services, including those purchased by tourists.
Includes items like meals, souvenirs, and entertainment.
Airport TaxLevied at some airports on airfares.
Used to fund airport infrastructure and services.
Rental Car TaxCharged by rental car companies on the rental fee.
Revenue may support local transportation projects.
Park Entrance FeesApplied in destinations with natural attractions.
Fees support the maintenance and preservation of these locations.
Cruise Ship TaxesIncluded in some cruise itineraries for ports visited.
Funds can be used for port development and maintenance.
Occupancy TaxSimilar to lodging tax but applies to short-term rentals
like Airbnb properties and bed and breakfasts.
Environmental or Ecotourism TaxesFound in ecotourism destinations to conserve natural resources
and protect fragile ecosystems.  
Visa or Entry FeesRequired in some countries for travelers to obtain visas or entry permits.  
Types of Tourism Tax

The specific types and rates of these tourism taxes can significantly vary from one location to another, impacting the overall cost of travel for tourists.

(F.1) Some other types of Tourism Tax

Per diem tax (Daily Visitor Fee)

In 2019, Bhutan implemented a daily fee ranging from $200 to $250 per visitor, making it one of the highest tourist levies globally. Initially, travelers from India, Bangladesh, and the Maldives were exempt from a portion of this fee, but Bhutan intended to raise fees for these visitors starting in 2020.

Hotel Tax

Several European countries impose a daily tax on hotel room stays and temporary accommodations. For instance, in Germany, cities levy this tax in addition to the Value Added Tax (VAT), often referred to as “Kulturförderabgabe” (culture promotion tax) or “Bettensteuer” (bed tax). Many municipalities exempt business travelers from this tax. Spanish cities also impose a fixed local hotel tax. 

In Greece, a hotel tax has been in effect since 2018, ranging from 0.50 euros to 4 euros. Romania, in addition to other tourist taxes, charges a national fee equivalent to 1% of the accommodation cost. Numerous U.S. states and municipalities also apply hotel taxes, with Houston having one of the highest rates at 17% of daily lodging expenses. In the Netherlands, there is a cruising tax for individuals staying on cruise ships docked in the city, while separate taxes target guests staying in hotels.

Restaurant Levies

Taxes imposed on restaurants can also be considered a variant of tourist taxes.

Arrival Fees

In 2019, New Zealand considered implementing a $35 arrival fee for visitors from countries beyond the Pacific region. This fee was expected to generate NZ$80 million annually and potentially reduce the annual visitor count by 20,000. Venice introduced a 10-euro entrance fee in 2018, and Civita di Bagnoregio introduced a 5-euro entry fee in 2019.

Departure Charges

Most Caribbean countries levy a departure tax, such as the $51 fee in Antigua and Barbuda and the $15 fee in the Bahamas in 2019, automatically included in airline fares. In the same year, Japan introduced a 1,000-yen “sayonara tax” for departing visitors, with the proceeds dedicated to funding the 2020 Summer Olympics, originally scheduled in Tokyo. Indonesia also imposes a departure tax, with rates varying depending on the airport.

(G) Things you must know about Tourism Tax

Following are the aspects that you must know about tourism tax.

Aspects of Tourism TaxDescription
Variety of TaxesVarious types of tourism tax exist.
Location-SpecificRates and rules vary by location.
CollectionCollected by providers, paid by travelers
PurposeFunds local initiatives and promotions.
ExemptionsSome travelers may be exempt.
TransparencyTypically displayed separately on bills.
Cost ImpactSignificantly affects overall expenses.
Regulatory ChangesRules may change, requiring awareness
Economic SupportBoosts the local economy and services.
Legal ComplianceNon-payment may lead to fines or issues
Things you must know about Tourism Tax

Let’s cover the above points in detail-

Varied Application

Tourism taxes can take many forms, including lodging taxes, sales taxes, airport taxes, and more. They can vary by location and how they are applied.

Destination-Specific Rates

The rates and rules for tourism taxes are not standardized and can differ greatly from one place to another. It’s essential to research the specific tax regulations of your destination before traveling.


Tourism taxes are typically collected by lodging providers, restaurants, or other relevant businesses. Travelers are responsible for paying these taxes, which are often included in the final bill.


The revenue generated from tourism taxes is usually earmarked for local initiatives, such as improving infrastructure, maintaining attractions, or promoting tourism. These funds benefit the destination and enhance the visitor experience.


Some destinations may exempt certain groups or types of travelers from paying these taxes. For instance, business travelers or residents of the area may be exempt.


Many countries and cities ensure transparency by showing the tax as a separate line item on bills, making travelers aware of the additional cost.

Impact on Travel Cost

Tourism taxes can significantly affect the overall cost of your trip. It’s crucial to factor these taxes into your travel budget to avoid unexpected expenses.

Regulatory Charges

Tourism tax regulations can change over time. Stay informed about any updates or revisions to the tax laws, as they may impact your travel plans.

Economic Support

In some cases, tourism taxes contribute to the local economy, helping destinations maintain their appeal and cater to the needs of visitors.

Legal Compliance

Travelers are generally required to comply with local tax regulations, and non-payment can lead to fines or legal issues. Therefore, it’s important to understand and follow the tax rules of the destination.

Thus, tourism taxes are an essential aspect of travel that can affect your overall expenses. Being informed about the specific tax regulations of your destination and budgeting for these costs can help you plan your trip more effectively.

(H) How does Tourism Tax help the locals?

Green Tax of Maldives

As you have read above, tourism tax helps in the development of a region containing tourist spots. Let me explain it with the help of some real examples (facts)-

The Maldives regularly releases a ‘Green Fund’ report, providing a monthly update on the funds generated by individual islands and cities. These reports detail the allocation of funds to various projects, like sewerage system improvements, waste-to-energy plants, and the rejuvenation of the Maldivian coconut industry. This proactive approach demonstrates their commitment to positive change.

On the other hand, Bhutan operates differently by channeling all taxes, including tourism tax, into a common pool account. This account is used for various purposes, including paying government staff salaries. Funds left over are directed towards forest maintenance and the upkeep of historical monuments. While this might seem like a drawback, it’s worth noting that Bhutan achieved a remarkable feat in 2017, becoming the world’s first carbon-negative country, absorbing more carbon dioxide than it produces.

(I) Does Tourism Tax hurt Tourism Revenue?

How city tax helps locals

Well, that’s an obvious question that may pop up in your mind. The situation is a bit of a puzzle, you know? Surveys suggest that most people don’t really mind paying a tourism tax, but there’s a catch. They’re only okay with it when the country shows them exactly where their hard-earned money is going, like making tourism spots even better.

Here’s the twist: in some places, like the Maldives, even if they raised the tax by 10%, there was only a 5% dip in tourists. Not bad, right? But, in other spots, higher taxes scare away visitors and end up hurting the businesses that rely on them.

So, because there’s no one-size-fits-all answer, many countries are starting to introduce these taxes. It’s an easy way to keep the locals happy. And that probably means you’ll be seeing more of these taxes on your travel bills sooner or later. Time to stash a little extra cash for your next international adventure!

Note: When it comes to taxes, the most common tax that all Indians pay is GST. We have thoroughly covered the impact of GST on the Indian Economy. Go through the article to get detailed information.

(J) Final words

So, when you’re planning your trip, you might come across something called a “tourism tax.” It’s like a sly cost that’s part of your travel. You’ll pay for it when you book a hotel or go to restaurants. But here’s the deal. You can’t get away with it. Else, you will have to pay a fine!

Tourism taxes are typically levied indirectly through accommodation providers or holiday companies and are aimed at overnight visitors. They are considered a means of tax exporting, where tourists contribute to the local economy through these fees.

Local governments use this tax money to make sure the area is awesome for tourists. They fix up roads, keep attractions running, and do all sorts of cool stuff. So, while it might seem like an extra expense, it’s like your secret helper, making your trips even better. It’s all part of keeping those travel adventures exciting and memorable!

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Published By: Supti Nandi
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6 months ago

The content like always is so amazing and so informative 🔥♥️

Monu Kumar
Monu Kumar
6 months ago

It’s a very important article for me because I like to travel and explore new places but I didn’t know how I pay taxes for small things for the government.

6 months ago

Liked the content, very Informative ~ expecting more articles like this by @Supti Nandi Nandi 🙂

Aashima Oberoi
Aashima Oberoi
6 months ago

Interesting to learn, how the tourist end up contributing much of their budget in taxes 🙂