Several Caribbean governments have entered into agreements with Airbnb, primarily to facilitate  tax collection. Is that a good thing?  

 

Over the past several months, and for regular readers of our weekly news roundup, there have been a number of articles on Caribbean countries entering agreements with Airbnb. Airbnb is an online hospitality marketplace that allows individuals to offer accommodations, such as houses, apartments and rooms, for short-term lease or rent. 

Frequently, these accommodations are being offered at cheaper prices when compared with traditional hotels in the same area. Hence, although they can be an attractive option for many travellers, essentially, they are competing directly with the more established hospitality offerings. 

Impact of Airbnb

Although Airbnb is based in the United States, in virtually all Caribbean countries, scores of properties have been listed on the platform. Further, since many Caribbean countries do not readily offer low-cost accommodation, the private listings on Airbnb can be a godsend to those who cannot afford the premium rates the established hotels tend to charge. 

Having said this, and across the region, tourism is the leading revenue earner in most countries – not only through the purchases travellers make whilst visiting, but also through the taxes governments collect, especially on accommodation. With the increased use of Airbnb, hotels are not the only ones feeling the pinch through lower occupancy and lost revenue. Governments have also been losing out with respect to taxes revenue. 

As expected, there was an initial outcry on the impact Airbnb was beginning to have on the hospitality industry. However, it was quickly realised that all the platform was doing was formalising a practice that had already existed, and upon which the countries, themselves, also depended when hotel rooms are scarce, such as when major events are taking place. Additionally, in these still trying economic times, it is beneficial to countries for their citizens to have – and to be able to take advantage of – income generating opportunities, and thus taking some of the pressure off Government to provide (for them). 

If you can’t beat ‘em… 

It was thus a bit of a surprise when early cries against Airbnb have been replaced by reports of governments signing agreements with the company. Typically, and on the part of the governments, their focus is revenue recovery through Airbnb: to collect the hotel-related taxes that obtain under local law, for properties listed on the platform.   

To be fair, there is precedent for that arrangement. Over 250 jurisdictions worldwide, including Canada, France, India, Italy, Mexico, Switzerland, and the United States, have agreements with Airbnb to collect occupancy taxes on their behalf (Source: Airbnb Citizen). In the region, Antigua and Barbuda, Curaçao, the United States Virgin Islands, and now Jamaica, to name a few implemented similar arrangements with the platform.  

Disruption versus bureaucracy and longstanding traditions 

The emergence of a platform, such as Airbnb, caused considerable disruption in the hospitality industry, and highlighted the fact that hotels are no longer protected. Typically, establishing a hotel is a major investment for which cities and countries offer substantial inducements, such as tax breaks and credits, to increase the attractiveness of their locations for those projects.  

However, with the Internet, and services such as Airbnb, that put more power and autonomy in the hands of citizens, traditional power structures (and playing fields) have been changing. Further, and whether we fully appreciate it or not, we are operating in a truly global marketplace, where geographic boundaries have become transparent, and all that matters is whether there are buyers (regardless of their location) for the products or services being offered. Hence, even in the wilds of Guyana, for example, short-term accommodations can be advertised on a platform, such as Airbnb, and anyone who is interested, can not only know about such options, but also secure them, if desired. 

Having said this, governments worldwide, and especially those in the Caribbean, are beginning to realise that in this digital age, they need to raise their game, that is, find more creative ways to do business. In the majority of instances, local laws not keeping up with technology, and a change is mindset and behaviour still lags behind. Luckily, in the case of the hospitality industry and Airbnb, the firm has been amenable to collect and remit occupancy taxes to governments. Such arrangements will improve not only increase revenues but also the country’s collection efficiency, especially in the Caribbean region, where high rates of delinquent taxpayers and inadequate revenue collection systems are the norm 

 

Image credit:  Gratisography (Pexels) 

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