Iceland Is So Tired of Tourism That It Has Adopted a Drastic Measure: Taxing Its Visitors

  • “If we see visitors damaging places, we must take action,” Iceland's prime minister said.

  • The country reinstated the tourist tax suspended during the pandemic earlier this year.

Iceland is so tired of tourism that it has adopted a drastic measure: Taxing its visitors
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If there’s one thing that major international destinations are demonstrating as visitor levels return to—and even exceed—pre-pandemic levels, it’s that successful tourism management is a matter of balance.

Balance between its contribution to GDP and its inconvenience to residents, its importance to the local economy and its environmental and social impact. Examples include Japan, Amsterdam, Hawaii, Venice, Barcelona, the Canary and Balearic Islands, and now Iceland, which is already studying how to adjust its tax policy so that the ever-increasing tourist influx doesn’t saturate the island nation.

This year, Icelandic authorities reinstated a tourist tax the country had applied before the pandemic. They are also studying changes to their tax model. The goal is to benefit from tourism without falling into over-tourism.

“Let the user pay.” According to a Monday report from CNBC, Icelandic authorities are looking to change the tax model applied to tourism to achieve the desired—and complex—balance between tourism and sustainability.

“We are trying still to mold the taxation system for the tourism sector for the future,” Iceland’s prime minister Bjarni Benediktsson told CNBC. The head of state didn’t go into detail or specify what the authorities have in mind but gave some hints as to where they want to go in the future.


More control. “We would like to lean more towards a system where the user pays,” Benedkiktsson said. He admitted to wanting to focus on what he calls tourists “magnets.” “By doing that, we could control traffic. So, at the height of demand, we could have a higher tax where we could control by amending the fees both within the day or between months or during parts of the year.”

Iceland’s newly appointed prime minister quickly pointed out that the plan is still in its early stages. “It’s a work in progress.”

The goal: balance. Benedicktsson’s priority is ensuring that the tourism sector grows in harmony with society and nature. To this end, the government is working on its own “sustainability balance.”

“We came up with a system under which we look at certain indicators: Is nature in balance in a certain spot? Is society happy with the development? Is that on a green, yellow, or red light? If we see that places are being damaged by the number of people that visit, for example, Geysir where we have the hot springs, we need to take action,” he added.

Another indicator. This isn’t the first time the Icelandic government has suggested using taxation to avoid the effects of over-tourism. Last September, under former prime minister Katrín Jakobsdóttir, authorities admitted that they were looking at tax policy to protect themselves from the overflow of travelers. “Tourism has grown exponentially in Iceland over the last decade, and that obviously doesn’t just affect the climate,” Jakobsdottir warned in an interview with Bloomberg.

“In addition, most of our guests are visiting nature, and that creates pressure,” she said. Bloomberg pointed out that one of the government’s strategies to slow down tourist overcrowding would be to raise taxes on visitors staying in the country. Jakobsdottir clarified at the time that the taxes wouldn’t be high, at least initially.

Tax recovery. In the new year, the government decided to reintroduce a tourist tax that it had applied to accommodation before the covid-19 pandemic, extending it to cruise passengers. As Schengen News points out, it meant that visitors had to pay an extra €4 ($4.30) per room for accomodation booked in hotels, guesthouses, and others. Those staying at campsites and traveling via caravan had to pay a slightly higher surcharge (€6.63, or  roughly $7.15).

During his interview with CNBC, Iceland’s current prime minister celebrated the reintroduction of the tourism tax, a decision made under his predecessor, as an “important decision” for the country. However, he said the government needed to go further to achieve balance.

Percentages... and eruptions. Icelandic tourism is facing a complex scenario. In recent months, the country has suffered from volcanic eruptions that have affected some of its most visited areas. Just a few weeks ago, a volcano in the southwest erupted for the fifth time since December, threatening the coastal town of Grindavik and forcing the evacuation of the Blue Lagoon geothermal spa, a popular destination for visitors. Despite this challenge, Iceland’s tourism sector continues to recover strongly after the covid-19 pandemic.

Data collected by CNBC shows that this year, authorities expect the country to receive 2.3 million visitors. In 2025, they expect 2.4 million, and an increase to 2.5 million in 2026. With an exception for the years marked by covid-19, the flow of visitors to the island nation has grown steadily over the past decade, according to data from Statista.

And at a good pace. In 2010, Iceland registered just 1.77 million tourists, considerably below the 2.5 million it will reach by the middle of this decade if forecasts are correct. Its economic impact has become so great that in 2023, the tourism sector accounted for 8.5% of the country's GDP, significantly higher than the 7.5% it previously held in 2022 or the 8.2% before the pandemic.

Images | Benjamin R. (Unsplash) | Ruslan Valeev (Unsplash)

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