Iceland plans to treble vat on accommodation

Iceland holidaymakers are reacting strongly to new proposals from the country, which may see VAT increase on hotels. The hike, which would see tax rise from 7 per cent to 25.5 per cent on accommodation, restaurant food and tourist attractions, may push the cost of visiting Iceland up from as soon as May 2013.

Since the banking crisis took hold, Iceland has enjoyed a period of increased tourism with the value of the country's currency significantly reduced against the pound and euro. But Iceland's tourist industry is concerned that rising VAT rates would cancel the boost altogether.

"Iceland [had been losing] its perception as an expensive destination," Tom Jenkins, chief executive of the European Tour Operators Association told The Telegraph. "This tax rise effectively punctures that impression."

"What is strange is that Iceland has been a textbook example of the virtues of cutting indirect taxation in tourism. In 2007, it halved tax on tourism services from 14 per cent to seven per cent. By 2008, tax receipts from tourism were six per cent higher than they had been in 2006."

210,000 visitors went to Iceland in 1997, according to the ETOA. In 2011, that number surged to 600,000.