On May 23, 2024, the Blue Lagoon geothermal hot spring near the fishing town of Grindavik, Iceland.
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Iceland wants tourists to flock to its bubbling hot springs, picturesque ice caps and moon-like lava landscapes, but not at the expense of residents or the natural environment.
This small Nordic country famous for its ice and fire is not alone. From Amsterdam to Venice, hotspots around the world have introduced measures to try to curb the negative impacts of overtourism while preserving what is often a vital source of revenue.
“We are still working hard to shape the tax system for the future of tourism,” Icelandic Prime Minister Bjarni Benediktsson told CNBC via video conference.
“We want to move more toward a user-pays system. In my opinion, we want to move more toward a nationwide fee for magnet usage, as we call it,” Benediksen said.
“By doing this, we can control the flow. So, at times of peak demand, we can charge higher taxes, and we can control that by modifying the fees within a day, between months, or during parts of the year. But this is still a work in progress.
The Icelandic government reinstated the so-called tourist tax at the beginning of this year, seeking to raise funds for sustainable development plans and reduce the environmental impact of mass tourism.
The levy, which has been suspended during the Covid-19 pandemic, imposes a nominal fee of 600 ISK ($4.34) on hotel rooms, with different fees also levied on campsites, mobile homes and cruise ships.
On February 8, 2023, lava overflowed on the road leading to the Blue Lagoon, a famous tourist resort near Grindavik in western Iceland.
Christine Magnussen AFP | Getty Images
Benediksen described his predecessor’s reintroduction of the tourist tax as an “important decision” for the country. However, he said the government needs to further find the right balance.
Benediktsson, leader of Iceland’s pro-business right-wing Independence Party, succeeded Katrín Jakobsdóttir as prime minister in early April. He served as Prime Minister in 2017.
His second term as leader comes as the country grapples with soaring interest rates, high inflation and a series of volcanic eruptions.
Late last month, a volcano in southwestern Iceland erupted for the fifth time since December, spewing lava once again threatening the coastal town of Grindavik.
Seismic activity also forced the evacuation of one of the country’s most visited sites, the Blue Lagoon geothermal spa. The lagoon has been reopened to tourists after authorities said the eruption had stabilized.
Tourism revenue booms
Iceland’s tourism industry has recovered from a slump during the coronavirus pandemic. The country, with a population of about 383,000, is expected to receive 2.3 million tourists this year, nearly 2.4 million in 2025 and as many as 2.5 million in 2026.
Revenue generated by tourism is increasingly important to the Icelandic economy.
In fact, tourism will account for 8.5% of gross domestic product by 2023, according to Statistics Iceland, citing preliminary data from the Tourism Satellite Account. This is up from 7.5% in 2022 and above the pre-COVID-19 average of 8.2% from 2016 to 2019.
Skolavordustigur pedestrian street in Reykjavik, Iceland, November 11, 2023.
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Looking ahead, Benediksen said the government was developing its tourism tax system through its own “permanent balancing check”.
“We proposed a system under which we look at certain indicators: Is nature in balance somewhere? Is society happy with development? Is it a green light, a yellow light or a red light?” Benediksson said.
He added: “If we find places that are being damaged by the number of visitors, say the geysers where we have hot springs, we need to take action.”
“These are the things we are trying to develop and we are trying to follow the metrics and ensure that the development of the industry is well recognized by society and nature.”
