Iceland wants to change its tourism tax to protect nature – and fight overtourism

Iceland wants tourists to flock to its hot springs, picturesque ice caps and moon-like lava landscapes – but not at the expense of its people or the natural environment.

The small Nordic country known for fire and ice is not alone. From Amsterdam to Venice, hotspots across the globe have introduced measures to try to suppress the negative impacts of overcrowding while maintaining what is often an extremely important source of income.

“We are still trying to shape the tax system for the tourism sector for the future,” Iceland’s Prime Minister Bjarni Benediktsson told CNBC via video conference.

“We’d like to move more toward a user-pays system. As I see it, we’d like to move more toward magnet admission fees, as we call them, across the country,” Benediktsson said.

“By doing that, we could control the traffic. So at peak demand, we could have a higher toll that we could control by changing rates like intraday or between months, or during parts of the year. But that’s still in preparation”.

Iceland’s government reinstated the so-called tourist tax earlier this year, seeking to raise funds for sustainability programs and mitigate the environmental impact of mass tourism.

The tax, which was suspended during the Covid-19 pandemic, applies a nominal fee of 600 Icelandic kroner ($4.34) to hotel rooms, with different costs also applied to campsites, mobile homes and cruise ships.

Benediktsson described his predecessor’s restoration of the tourism tax as an “important decision” for the country. However, he says the government needs to go further to find the right balance.

As head of Iceland’s pro-business Independence Party, Benediktsson replaced Katrin Jakobsdóttir as prime minister in early April. He previously served as Prime Minister in 2017.

His second stint as the country’s leader comes at a time when the country is grappling with high interest rates, high inflation and a series of volcanic eruptions.

Late last month, a volcano in southwest Iceland erupted for the fifth time since December, spewing lava that once again threatened the coastal town of Grindavik.

The seismic activity also forced the evacuation of one of the country’s most visited sites, the Blue Laguna geothermal spa. The lagoon has since reopened to tourists after authorities said the eruption had stabilized.

Iceland’s tourism sector has bounced back from a downturn during the coronavirus pandemic. The country – which has a population of about 383,000 – expects to receive 2.3 million visitors this year, nearly 2.4 million in 2025 and up to 2.5 million in 2026.

Income generated from tourism has been increasingly important to Iceland’s economy.

Indeed, the tourism sector accounted for 8.5% of its gross domestic product in 2023, according to Statistics Iceland, citing preliminary figures from the Tourism Satellite Accounts. This is up from 7.5% in 2022 and exceeds the average of 8.2% recorded during the pre-Covid period of 2016 to 2019.

Looking ahead, Benediktsson said the government was working on its “sustainability balance check” to develop its tourism tax system.

“We came up with a system according to which we look at several indicators: is nature in balance in a certain place? Is society satisfied with development? Is it in a green, yellow or red light?” said Benediktsson.

“If we see that places are being damaged by the number of people visiting say Geysir where we have hot springs, we have to take action,” he added.

“These are the things that we are trying to develop, and we are trying to follow the indicators and make sure that the industry grows in a good acceptance with society, but also with nature.”