Taxes and travel, a combination affecting Caribbean tourism

Antigua and Barbuda’s Minister of Tourism, Henry Charles Fernandez, has a simple message for the Caribbean government.

He wants regional leaders to be as committed to regional interconnectivity as they are willing to pay international airlines to fly to their countries, often times “half empty.”

“And so, we need to convince our leaders and by extension our people who put our leaders and ourselves there, the importance of this regional connectivity,” said Fernandez, amidst the ongoing debate in the Caribbean about the taxes that regional governments impose on the aviation sector and visitor arrivals

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Fernandez made his position known as he participated in a panel on “Multi-Destination Tourism” as part of the Caribbean Tourism Organisation (CTO) Business Meetings and Caribbean Aviation Day conference held last week.

The event was jointly organized by the Barbados-based CTO, the Cayman Islands government, and the International Air Transport Association (IATA)..

Fernandez, who also has ministerial responsibilities for economic development, said it is unacceptable for Caribbean governments to pay a US carrier to fly to their countries, “quite often half empty, but then say I have nothing to put into a regional carrier…

“There has to be a commitment that we must do it. We have to do it,” Fernandez said, noting “everything costs money, but we need to look further down as to what happens as people travel through the islands.

But he said despite that situation, the region must be willing to consider whether reduced taxes would translate to higher visitor arrivals, which would mean even more money from visitor spend.

Economist, Marla Dukharan, who also participated in the panel discussion, said government ministers are better positioned to speak on whether their countries can afford to reduce the aviation taxes, and if so, by what percentage.

She, however, said there are already “pockets,” such as the ABC Islands — Aruba, Bonaire, and Curacao — as well as Dominica, Martinique, and Guadeloupe, which have multi-destination tourism.

“You have this happening and perhaps that might be the answer — little pockets as opposed to one big pocket… It’s really about what we have to lose. Let’s look at that as opposed to also looking at what we have to gain.”

Dukharan said the Caribbean is “the most open region in the world” in terms of exports as a percentage of gross domestic product (GDP) and “for that reason, our economies depend so heavily on connectivity, air and sea connectivity.”

But she noted that the Caribbean is also the most tourism dependent region in the world.

“And so, for that reason, for the tourism sector, we need to solve this problem,” she said, adding that according to the Caribbean Policy Research Institute in Jamaica, in 2019, the tourism sector contributed a third of the region’s GDP directly, 53 percent of total exports, 43 percent of total employment and 40 percent of the informally employed, noting that 40 percent of all jobs in the Caribbean is in the informal sector.

“So, this sector needs to work well,” Dukharan said, adding that the Caribbean is also the most expensive tourism destination in the world.

To illustrate, the economist said that she went to the travel website Expedia and chose a random date — October 23 to the 29^th — and looked at flights from Barbados to various destinations.

“We have in excess of 30, 40, and in some cases more, percent of the total ticket cost that’s just taxes,” Durkaran said, adding that this is “just one slice of the pie but it is an important slice of the pie.

“This is something we absolutely have to address in this region, because it seems to me like instead of being a race to the bottom, we are a race to the top as it relates to taxes in this region,” she said, adding that regional air connectivity is important not just for tourism but also because the region is the most open in the world.

“We really have to think very seriously about this tax structure… And those who are the most profitable are the ones who need to shoulder a relatively larger share of the taxes than those who are least profitable when you are taxing the ticket,” Dukaran said, adding that she did not know which sector this is — whether aviation or accommodation or something else.

“You’re taxing everybody in the destination equally regardless of if you’re a taxi driver, or a five-star hotel — and that doesn’t make sense. And so, that is something I think we need to get right: the progressive nature of the taxation regime as opposed to what I see as a regressive taxation regime.”

Jamaica’s tourism minister, Edmund Bartlett acknowledged that the tax discussion is an important one that has been long in coming, recalling that in 2010, there was a discussion in the Cayman Islands that focused on convergence in the northern Caribbean.

He told the panel tourism is a highly consumption-driven activity.

Bartlett said global economies that had been predicated on minerals and oil and other commodities are morphing into tourism.

“Dubai is your best example,” he said, adding that Saudi Arabia is spending enormous amounts of money to create the products of the Red Sea and Neon to build Jeddah “in a manner that you will never imagine.”

Bartlett said the coronavirus (COVID-19) pandemic has given the Caribbean the opportunity to reimagine tourism.

“I’m not saying taxes are to be eliminated. I’m saying taxes are to be reconfigured. In other words, instead of putting the tax to the visitor before they arrive, in other words, tax the import, tax it when it comes as the export because it is consumption.”

The newly appointed CTO chairman, Cayman Islands Tourism Minister, Kenneth Bryan says he does not think it is “correct that we put all the pressure on my political colleagues.

“There’s other stakeholders in the room that also have to do some compromising here, because we do have our constituents to take care of.”

Bryan and his newly appointed chairman of the CTO board of directors, Rosa Harris, the Cayman Islands director of tourism were present, last Wednesday, when IATA Vice President for the Americas, Peter Cerdá, said travel and tourism in the sector needs “more than just good sounding words and declarations.

“We need action,” Cerdá told the Caribbean Aviation Day conference as he presented a case for marketing the region as a single destination.

Barbados Tourism Minister, Lisa Cummins, was concerned that 56 percent of the cost of an airline ticket to Barbados is made up of taxes, even as she sought to explain the reason for the situation.

“But let us break down where fees and charges go to in-country because the things that we want and the things that we have to be able to provide him with a price tag. That helps to support the airlines where we have incentive programs and cooperative marketing programs in the source markets,” she argued.

Cedar said to fly from Port of Spain to Barbados, taxes and fees account for 40 percent of the ticket prices. In comparison, Lima, Peru to Cancun, Mexico, another beach destination, taxes, and fees only represent 23 percent.

Cummins suggested that “perhaps” the taxes should be reduced.

The Cayman Islands tourism minister said the pockets system can work along lineage lines, for example, noting that Dutch, English, French and Spanish are spoken among the 24 CTO member destinations.

“And I personally think — just my preliminary analysis — that this pocket approach is probably what’s going to be best. And then the major hubs can work collectively together.”

But Bartlett said it is important to understand what is required to ensure a multi-destination strategy to work.

“First of all, from the public sector side, we, ministers, politicians and then, of course, the private sector because the product has to be also created.

You cannot have multi-destination simply by trying to connect. Connect to what? So we have to develop a Caribbean product because there’s a marketing dimension to all of this. And so, the private sector teams have to come together to create now a product with a price so we can package it and go to the market together as one,” Bartlett said.

CMC/