March 31, 2017 / 12:26 PM / 8 months ago

Iceland proposes tax hike on surging tourist sector

STOCKHOLM, March 31 (Reuters) - Iceland said on Friday it plans to hike taxes on the booming tourism sector while cutting general value-added taxes, a move it expects to lower inflation and could possibly pave the way for monetary policy easing by the central bank.

The prime minister had said on Thursday that cutting interest rates was of extreme importance to households and businesses as the country emerges from capital controls introduced during the 2008 financial crisis.

In a fiscal plan for the next five years, the Finance Ministry said the planned tax changes was seen lowering consumer prices by 0.4 percent.

Only days after Iceland lifted capital controls this month, the central bank left interest rates unchanged at 5.0 percent and hinted it may lower them soon if an end of the curbs did not undermine the country’s currency.

Taxes on most types of tourism will be hiked to the general VAT rate, effective July 1 next year or 15 months after an announcement is made, while that general level will be cut to 22.5 percent from currently 24.0 percent from Jan. 1, 2019.

Tourism sectors such as hotels and whale-watching tours are now taxed at 11 percent.

A surge in tourism has helped fuel an economic boom with growth hitting 7.2 percent last year, raising concerns of overheating.

The Finance Ministry also said a carbon tax which it said was low by international standards would be doubled and that the government would consider cutting payroll taxes when warranted by conditions.

Reporting by Daniel Dickson; Editing by Simon Johnson and Alison Williams

Our Standards:The Thomson Reuters Trust Principles.
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