UK tourism incurs £ 750 million loss from tourist tax impact

Monday, September 4, 2023

The impact of the UK’s tourist tax scheme has proven counterproductive to the economy, resulting in an annual loss of £ 750 million.

High-spending tourists are now opting to forego shopping in the UK in favour of countries like Italy, France, and Spain, where they can benefit from VAT-free shopping, according to findings from the Association of International Retail (AIR).

Reportedly, 350 business units have already sent an open letter to Chancellor Jeremy Hunt, the architect of this perceived setback to UK tourism, seeking a prompt resolution of the situation.

Data provided by Global Blue, an operator covering approximately 70 per cent of the market, reveals that Tax-Free Shopping (TFS) expenses by tourists from the EU27 countries significantly lag behind those originating from China, the Gulf Cooperation Council (GCC) markets, and the United States.

Initially, high-spending US tourists enjoyed a 20 per cent refund on their luxury purchases through the VAT scheme. However, in 2021, after the UK left the EU and the VAT scheme ended, Jeremy Hunt deemed TFS for tourists as ‘unaffordable’.

Despite the scheme’s introduction with the ambitious goal of generating over £ 1 billion by 2024 and even more in subsequent years, the current reality paints a different picture.

According to a report by Oxford Economics, the actual fiscal impact of implementing TFS in the UK would be more than 70 per cent lower than the estimate provided by the Chancellor.

A luxury trade association report highlighted that tax-free shopping contributed over £3 billion annually to the UK, encouraging people to purchase in the country along with broader economic advantages, and therefore advocated for its reinstatement.

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