Local tourist taxes in Portugal: A systematic review of municipal regulations

The academic community agrees that tourism can negatively impact various aspects, such as public spaces, infrastructures, and natural resources. This can lead to the deterioration of territories, the increased consumption of water and energy, more waste production, higher traffic, and the increased use of public facilities and services (Mathieson & Wall, 1982; Câmara Medeiros, 2013; Costa, 2015; Doğan, 2017; Drius et al., 2019). To address the negative impact of tourism on local communities and visitors, it is crucial to adopt national/regional/local public policies that benefit both parties. However, resources are limited; thus, it is vital to generate extra income to fund activities and investments that offset the costs of tourism. This will help to enhance and promote the region’s tourist offer, making it more attractive. One effective way to achieve this is through creating and implementing tourist taxes, which have gained prominence as a public policy tool (Mak, 2006; Kato et al., 2011; Weimer & Vining, 2017; Durán-Román et al., 2021). Many studies have focused on the role of tourist taxes in generating revenue to fund public expenditures related to tourism activity. Examples of such studies include those conducted by Gooroochurn and Sinclair (2005), Mak (2008), Gago et al. (2009), and Falk and Hagsten (2019), among others. According to Gooroochurn and Sinclair (2005), tourist taxes can increase national welfare by placing most of the onus on tourists instead of locals. This is because tourists contribute to a higher tax base due to their higher demand. Tourist taxes have become essential in many tourist destinations worldwide to cover the external costs of tourism and support tourism investments, social services, and environmental protection. The “user-pays principle” guides the implementation of tourist taxes, ensuring a fair distribution of the costs incurred by tourism activity (Göktaş & Çetin, 2023).

The focus of this research, the use of tourist taxes as a public policy tool, is relatively new in Portugal. The earliest implementation of such taxes can be traced back to January 2016 in Lisbon, while most local regulations related to tourist taxes were created between 2018 and 2020. Of 308 municipalities, 14 have implemented tourist taxes within their territories.

This research aims to analyse existing municipal tourist tax regulations in Portugal, creating a conceptual framework for their comparison. As also observed, and to the authors’ knowledge, no conceptual framework could help scholars and local authorities analyse, discuss, and/or propose new tourist tax regulations. This paper intends to address this gap and is structured as follows: After the introduction, Section 2 reviews the existing literature on tourist tax regulation, namely, from a local perspective. Section 3 is dedicated to methodology, and Section 4 analyses and discusses the municipal regulations according to a conceptual framework designed for this purpose. Sections 5 and 6 present the main discussion and conclusions.

Tourism is a vital source of income for many countries, but excessive tourism activity can lead to problems (García-Hernández et al., 2019; Hernandez-Maskivker et al., 2021). Over-tourism can cause governance issues in several destinations, such as Barcelona, Berlin, Lisbon, or Prague (Eckert et al., 2019) and harm their environmental, sociocultural, and economic structures. This creates pressure on municipal infrastructure, water consumption, public health services, and pollution, resulting in more significant natural and cultural degradation (Doğan, 2017; Kırca & Topal, 2017).

A sustainable management of tourism growth is crucial, considering the environmental, social, and cultural effects on society. Sustainable tourism development strategies are needed to optimise tourism’s economic benefits while minimising negative impacts. Natural and cultural resources must be safeguarded for future generations. Therefore, public entities should prioritise implementing strategies to tackle the issues arising from the “tourism footprint” (Pazienza, 2011).

Based on the theory of welfare economics, governments intervene in the economy to address market failures, such as public goods, externalities, natural monopolies, and information asymmetry. These failures prevent resources from being efficiently allocated and can damage the welfare of everyone involved, including those in the tourism industry. This is known as tourism market failure and includes issues such as tourism public goods, tourism externalities, natural monopolies in the context of tourism activity, and tourism information asymmetry. Several studies have explored this topic, including the works of Fleischer and Felsenstein (2000), Gooroochurn and Sinclair (2005), Blake and Sinclair (2007), Figini et al. (2007), Costa (2016), and Adedoyin et al. (2023), among others.

Costa (2016) proposes a set of public policy instruments that local governments can use to address the adverse effects of tourism. These effects, known as externalities, impact third parties without direct compensation (Schubert, 2010; Tribe, 2020). To deal with these issues, scholars suggest the implementation of tourist taxes, which follow the principles of Pigouvian taxes. Public intervention is often necessary to address market failures, and understanding these failures is crucial to developing policies that improve the efficiency and sustainability of the tourism sector. Public taxes on tourism activities are an option for public managers struggling with the “tourism footprint” (Kato et al., 2011; Santos, 2012; Durán-Román et al., 2021; Göktaş & Çetin, 2023). Taxing tourism activities has several objectives, such as expanding the tax base, exporting taxes, or addressing market failures (Mak, 2006). While the revenue generated from these taxes helps finance government expenses, it is essential to evaluate their impacts, especially at the local level (Adedoyin et al., 2023). For instance, in Vila Nova de Gaia municipality, Portugal, the revenue collected from fees is used to fund public expenses related to tourism, such as providing information and assistance to tourists, improving safety, maintaining and enhancing public spaces, and building cultural and leisure facilities for visitors (Regulation no. 652/2022, 2022). Similarly, in the municipality of Cascais, the tourist tax is required in exchange for the services and investments directly or indirectly linked to tourism (Regulation no. 382/2016, 2016).

Despite the abovementioned advantages, some authors have also identified disadvantages of tourist taxes at different levels (Palmer-Tous et al., 2007; Göktaş & Polat, 2019; Adedoyin et al., 2023). Adedoyin et al. (2023) have identified several adverse economic effects of applying tourist taxes, especially in destinations highly dependent on the tourism sector. The authors highlight that these taxes lead to increased prices, which, all else being equal, could reduce demand for the destination. As a result, the decrease in visitors can lead to a reduction in tourism income, affecting not only accommodation activities but also other tourism-related businesses such as restaurants, transportation, and commerce due to the multiplier effect. Palmer-Tous et al. (2007) argue that implementing tourist taxes can impact a destination’s competitiveness compared to others in competitive tourist markets. Destinations where taxes are applied may be less attractive due to increased tourist expenditure. Similarly, Göktaş and Polat (2019) suggest that introducing tourist taxes can negatively affect the overall perception of a destination. The various ways taxes are applied in European cities can influence tourists’ perceptions of the destination’s competitiveness. Also, Palmer-Tous et al. (2007) further state that the perception of paying an additional fee can create a negative feeling in tourists, affecting their overall experience and satisfaction with the trip. The authors suggest that this can lead to a lower return rate and harmful recommendations about the destination. Moreover, applying taxes can disproportionately impact lower-income tourists, making the destination inaccessible to them and restricting the diversity of tourists. In their 2019 study, Göktaş and Polat (2019) pointed out several challenges associated with implementing tourist taxes. They emphasised the administrative complexities involved in calculating, collecting, and managing the revenues, especially at the municipal level. The authors also highlighted the importance of transparency in using tourist tax revenues to avoid mistrust among tourists and residents. They noted that inefficient management and unclear allocation of these revenues for meaningful improvements could undermine the measure’s acceptance.

However, creating these public policy tools can help municipalities obtain the necessary funds to achieve policy objectives related to sustainable destinations. This can offset the cost of providing public goods and services and address the negative externalities caused by tourism activities (Gago et al., 2009). Derek (2021) concludes that tourists use a wide range of services and facilities managed and paid for by local authorities, many of which are public goods. Therefore, tourists must be included in their consumption as free riders. In addition, other externalities related to increased waste production and pollution, or higher levels of traffic congestion, are identified due to tourism activities that have local impacts. While local taxes do not offset all tourism costs, the author concludes that they can help municipalities to redress the balance by charging tourists, at least in part, for public goods and services they consume and raise funds that can be used to improve the attractiveness of the destination by making it a better place to visit and experience.

Mak (2006) suggests that implementing tourist taxes is the most effective way to address market failures. This involves imposing a tax on tourism activity, a public policy adopted by many countries, including Portugal, at the municipal level.

In this research, a qualitative approach was selected through a literature review of 14 municipal regulations on tourist taxes to identify, evaluate, and synthesise information in a structured and replicable way. A conceptual framework was designed and supported by variables such as (i) the incidence and age of taxpayers, (ii) the total and partial exemptions, (iii) the amount of the tax, (iv) the maximum amount to be charged, (v) the collection charges and administrative infractions; and (vi) the economic and financial justification. Those variables (more detailed in Table 1) were selected based on municipal tax regulations, including tourist taxes, as outlined in the General Regime of Local Government Taxes (Law 53-E/2006, as amended). By utilising these requirements, it is possible to organise and analyse the current municipal tourist tax regulations in Portugal and compare the policy options of different municipalities. These criteria form the basis for calculating the tax and the revenue resulting from tourist activity, ensuring a fair distribution of public spending. In other words, the criteria for the fair distribution of public charges that each territory defined was thus identified. This conceptual framework will allow researchers to conduct a more rigorous analysis, facilitating replication and comparison of results in future research.

By analysing the current regulations on municipal tourist taxes in Portugal and looking at specific variables, the authors compare and evaluate the political decisions made on this topic in the 14 municipalities that currently have tourist taxes in force. On 31 December 2022, only 11 out of 308 municipalities enforced tourist taxes, including Braga, Cascais, Faro, Lisbon, Mafra, Óbidos, Porto, Santa Cruz, Sintra, Vila Nova de Gaia, and Vila Real de Santo António. In 2023, three more municipalities (Coimbra, Figueira da Foz, and Póvoa de Varzim) implemented tourist taxes, bringing the total number of municipalities with this tax to 14 (4.6%), as illustrated in Table 2.

Generally, each municipality creates and enforces municipal tourist tax regulations autonomously. However, only Cascais, Lisbon, and Sintra municipalities have included the municipal tourist tax within their existing general tax regulations covering all municipal taxes. While most municipalities call this tax the “municipal tourist tax,” a few exceptions exist. Sintra refers to it as a “municipal tourist tax on overnight stays,” Vila Nova de Gaia calls it the “Vila Nova de Gaia city tax,” and Santa Cruz designates it as the “tourist eco-tax.”

At the supra-municipal level, the Lisbon Metropolitan Area has the highest number of municipalities (4) implementing tourist taxes, followed by the Porto Metropolitan Area, with three municipalities. Surprisingly, the Algarve Intermunicipal Community, the region with the highest number of overnight stays, has only two municipalities (Faro and Vila Real de Santo António) that apply tourist taxes, as well as the Coimbra Region Intermunicipal Community, also with two municipalities (Coimbra and Figueira da Foz). The Intermunicipal Communities of Oeste and Cávado have only one municipality each that applies a tourist tax (Óbidos and Braga, respectively). Additionally, the municipality of Santa Cruz in the Autonomous Region of Madeira also applies a tourist tax but is not part of any inter-municipal community or metropolitan area.

In addition to the 14 municipalities that have currently approved and implemented tourist tax regulations, other municipalities have discussed this matter in city council meetings. At the same time, some have already begun the public consultation process for their tourist tax regulations. These municipalities include Évora, Loulé, Olhão, Portimão, Porto Santo, and Viana do Castelo.

Although not relevant to the current analysis of the local context, it is worth mentioning that the Institute for Nature Conservation and Forests (ICNF, I.P.) has implemented a tourist tax for visitors to Berlengas Island, Peniche, and Peneda Gerês National Park. Similarly, the Regional Government of the Azores had previously approved a regional tourist tax on 2023 January 1. However, it was later revoked by Regional Legislative Decree no. 3/2023/A on 2023 January 11, and therefore never came into effect.

As previously stated, our conceptual framework is based on six variables: (i) the incidence and age of taxpayers; (ii) the total and partial exemptions; (iii) the amount of the tax; (iv) the maximum amount to be charged; (v) the collection charges and administrative infractions; and (vi) the economic and financial justification. More details on these variables will now be provided.

These regulations concern tourism in various Portuguese municipalities and regions. They recognise the increasing number of tourists and the significance of tourism in each municipality. However, they also acknowledge the adverse effects of tourism, which are referred to as negative externalities. To counter these effects, the regulations propose implementing a tourist tax to generate revenue. The primary goal is to mitigate the negative impacts of tourism on different territories. It is important to note that sustainability is a significant concern for these municipalities, with many references to the term “sustainable” in the regulations. However, no direct or indirect mention of the Sustainable Development Goals (SDGs) exists.

This research examines Portugal’s current municipal tourist tax regulations and develops a conceptual framework using six variables to compare them. Currently, 14 out of 308 municipalities have implemented these taxes, with more consideration for adoption, as discussions are already taking place in municipal councils or public forums. This trend indicates a potential increase in municipalities adopting tourist taxes in the future, driven by the growing number of tourists and the significance of tourism in each area to mitigate negative externalities. Most municipalities with tourist taxes have specific regulations, while only three in the Lisbon Metropolitan Area include tourist taxes within general tax regulations for all municipal taxes. In the proposed conceptual framework, six variables are considered. The first four variables determine what is subject to be charged, who should be charged, how much, and for how long the payment should be. As previously mentioned by Palmer-Tous et al. (2007) and Adedoyin et al. (2023), these variables may affect the competitiveness of destinations and the demand for tourism due to higher costs for tourists and have direct implications on municipalities’ revenues and their ability to mitigate negative externalities (Derek, 2021). Conversely, factors such as tax discounts, age, and exemption rules may also impact the perceived fairness of these taxes or promote inclusion and social justice.

The tourist tax is usually charged per night, per person, for stays in various tourist accommodations. In Lisbon, the tax also applies to cruise ship passengers. The age requirements vary from 10 to 16 years, with half of the municipalities setting the minimum age at 13 and a third at 16. Generally, small children are exempt from the tax, while seniors are included due to their significant travel activity. Exemptions are granted for health-related stays (64% of municipalities), accessibility for disabled individuals (60% disability or more), and emergencies such as domestic violence or natural disasters. Additional exemptions include new students, religious pilgrimages, camping, and non-tourist activities. Tax rates vary seasonally, with year-round charges ranging from €1 to €2. Some municipalities reduce rates by 25% to 50% during the low season (October to March). In the high season (April to September), rates range from €1 to €1.5. Most municipalities cap the tax at seven nights, while others limit it to three, four, or five nights.

Tourist operators act as intermediaries for tax collection, receiving a commission of up to 2.5% of the amount collected. Municipalities enforce compliance, addressing infractions like non-payment, false billing, or improper documentation maintenance. Municipalities must provide transparent and valid economic justifications for the tax (Derek, 2021), ensuring revenues improve tourist experiences. Calculations are based on direct and indirect tourism-related expenses, with some municipalities offering reduced rates to maintain competitiveness and accessibility for low-income tourists. Accurately calculating the costs of local tourism activities can be tricky in many areas due to the potential misuse of funds (Göktaş & Polat, 2019). To address this issue, municipalities gather accounting information to track direct and indirect tourism-related expenses. These expenses include tourism support staff, municipal events and tourism promotion, services related to tourism (like cleaning, security, park maintenance, local development and culture, transportation, and environment), and yearly expenses for software licences. When management accounting systems are unavailable, municipalities allocate a portion of direct and shared expenses to indirect expenses based on criteria such as the number of tourists, the average length of their stay, and other relevant indicators to ensure accurate allocation. Some municipalities calculate unit costs per overnight stay per tourist, while others calculate the overall public activity cost or the direct cost of the tourism sector. Additionally, some municipalities offer incentives or benefits to apply a tourist tax at a reduced rate compared to the calculated unit costs to maintain competitiveness or provide access to low-income tourists (Palmer-Tous et al., 2007). The overall goal is for each municipality to include all expenses directly or indirectly related to tourism to establish a fair and accurate rate that reflects the true value of the activity.

Based on the main findings, there is minimal variation in tourist tax rates among Portuguese municipalities, with most having a fixed year-round rate and some employing seasonal rates that vary by high and low demand periods. Age requirements for paying the tax are similar, focusing on the number of overnight stays, with Lisbon also taxing sea passengers. All municipalities set a maximum charge per guest and offer exemptions for specific individuals.

Another important conclusion is that although the tourist tax is lower than the actual cost of tourism for municipalities, they still choose to support some of the expenses to boost tourism and maintain competitiveness in their territories. It is hoped that these taxes will benefit tourists financially. In other words, the main concern is not to affect tourist demand but to provide balanced and sustainable local development without an excessive financial burden on tourism, which has become an increasingly important activity for national and regional economic development. A standardised conceptual and empirical framework is needed to ensure better information dissemination and accountability (Costa et al., 2023). This would help verify that tourism revenues are used effectively for tourism-related investments, addressing infrastructure wear and tear and environmental degradation. The study provides insights for municipalities to manage tourism costs through taxation, create sustainable destinations, and develop fair public policies that balance costs and benefits. The theoretical contributions of the study focus on understanding how tourist tax regulations in Portugal are organised and their implications. It examines how public policies, such as tourist taxes, can help address issues in the tourism market by mitigating adverse effects and improving overall welfare. The study introduces a conceptual framework for analysing municipal tourist tax regulations, making it easier to compare different regulations and contributing to a better theoretical understanding of tourist tax policies. This framework is a valuable methodological contribution that allows for analysing municipal regulations, making it easier for future research to replicate and compare findings and increasing its usefulness for scholars and policymakers.

This study provides practical insights for municipalities to address the impacts of tourism, i.e., in designing and implementing tourist taxes. A standardised conceptual and empirical framework across all municipalities is essential for better dissemination of information and to support the growing importance of accountability in local governance. This allows municipalities to understand the values influencing decision-making processes, learn from each other’s experiences, and adopt the best practices in managing the impacts of tourism through taxation. By highlighting the concept of tourism market failures, the study provides a rationale for public intervention. It suggests that adequately designed tourist taxes can help internalise the costs associated with negative externalities, leading to more efficient and sustainable tourism management.

Future research should focus on examining tourism market failures and the specific externalities associated with tourism activities at the local level. This includes understanding how these externalities impact local communities and environments and identifying ways to mitigate them through public policy interventions. Additionally, it would be beneficial to explore the relationship between tourist taxes and sustainability initiatives to determine how taxation can promote sustainable tourism practices in alignment with the SDGs. Research should also investigate the economic and financial justifications behind different municipal tourist tax regulations to clarify the values and principles guiding these decisions. It is essential to include the perspectives of various stakeholders, such as local businesses, residents, and tourists, to ensure that tax policies are well-rounded and fair. Comparative analyses of tourist tax regulations across different countries can also provide insights into approaches’ diversity and effectiveness.