More Municipalities Cashing In on Tourism Recovery by Imposing Accommodation Taxes

By Tatsuya Tanoue / Yomiuri Shimbun Staff Writer

1:00 JST, May 4, 2023

As tourism picks up in line with the easing of pandemic-related restrictions, the implementation of accommodation taxes is spreading among municipalities looking to cash in on the recovery.

The taxes provide a steady independent financial resource amid the declining population and the resulting loss of tax revenues, but attempts to introduce them were put on the back burner during the pandemic.

The income is primarily intended to be used to promote tourism, but there are concerns that the taxes will also make tourism more expensive.

The tax is among a number of non-statutory taxes that can be collected by local governments with the consent of the Internal Affairs and Communications Minister. It applies to hotels and other accommodation entities, and the tax rate and use of the revenues are determined by local ordinance.

The Tokyo metropolitan government first introduced the tax in 2002. According to the ministry, as of April 1, such taxes have been adopted in three prefectures (Tokyo, Osaka and Fukuoka), five cities (Kanazawa, Kyoto, Fukuoka, Kitakyushu and Nagasaki), and Kutchan, Hokkaido.

‘Virtuous cycle’

Nagasaki established its accommodation tax ordinance last March, and began imposing the tax on April 1, taking into account the coronavirus situation.

The tax is ¥100 to ¥500 per person per night based on the room charge, and is expected to generate approximately ¥370 million in tax revenues in the initial fiscal year.

The city plans to use the funds to support the development of exhibition facilities and come up with ideas for hands-on activities for the Sites of Japan’s Meiji Industrial Revolution, which is inscribed on the UNESCO World Heritage List.

Prior to the pandemic, the city attracted about 2.7 million visitors per year, but that number dropped to about 1.14 million in 2021. “We hope to create a virtuous cycle by increasing the satisfaction and convenience of visitors, which will lead to an increase in the number of overnight stays,” said an official in charge.

In March, the town of Niseko, Hokkaido, known as an international ski resort, announced its intention to introduce a flat-rate occupancy tax of 2% of room rates.

After hearing the opinions of those in the lodging industry and others, the town plans to submit a draft ordinance to the town council by the end of this fiscal year.

Initial estimates, based on the number of overnight guests returning to pre-pandemic levels, show that the town can expect to take in ¥200 million in annual tax revenues.

The town government says the revenues will be used to improve the local transport infrastructure and to create a fund to support businesses affected by disasters and disease outbreaks.

The city of Matsue plans to set up this fiscal year a panel of experts to study the introduction of the tax. “We need to secure new financial resources to expand tourism, which is a vital industry [for us],” said a city official.

Deterring visitors

Some tourist destinations that were hard hit by the pandemic remain cautious about the tax.

When the hot spring resort city of Atami, Shizuoka Prefecture, solicited opinions from residents and businesses after compiling a draft ordinance last November to charge ¥200 per person per night, a number of concerns were raised.

Among the worries was that a tax would deter prospective visitors and send them to neighboring hot spring resorts, while others wanted more details on how the tax revenues would be used.

The advisory panel also sought more specific information, and the city decided not to submit the proposal to the February city assembly.

Muneaki Aoki, a professor of taxation theory at Kanagawa University, said: “Since this is a tax established independently by a local government, it is necessary to fully explain it to the local community and obtain their consent. It is also important to clearly show how the tax will be used after it is implemented.”