UK sees 750 million pound loss due to tourist tax impact on Chinese tourists

The absence of spending by Chinese shoppers due to the tourist tax is taking a toll on the UK, costing the nation an estimated 750 million pounds annually. A recent report from the Association of International Retail (AIR) has corroborated what many businesses have been emphasizing for months: high-spending Chinese tourists are now choosing to shop in countries like Italy, France, and Spain, where they can enjoy VAT-free shopping.

As the UK finishes its second year since the government decided to remove tax-free shopping (TFS) following Brexit, the treasury said it faces an estimated cost of 1.3 billion pounds to the Exchequer by 2024 by refunding VAT to foreign shoppers. According to figures from a report by Oxford Economics, the actual fiscal impact of implementing TFS in the UK would be more than 70 percent lower than the current estimate provided by Her Majesty’s Treasury (HMT). This discrepancy arises from both an anticipated overestimation of the total value of refunds that would be claimed and the failure to account for the policy’s influence on visitor behavior.

An analysis of data from Global Blue, an operator covering approximately 70 percent of the market, reveals that TFS spending by tourists from the EU27 countries significantly lags behind those originating from China, the Gulf Cooperation Council (GCC) markets, and the United States. In 2019, the average refund claimed by an EU27 tourist, in comparable markets, was 63 percent lower than that claimed by their counterparts.

The report by Oxford Economics, published in late 2022, which assesses the economic impact of tax-free shopping in the UK, suggests that reintroducing TFS would stimulate more people to visit the UK and spend on eligible goods, as well as various tourism-related services. Some potential TFS users may travel as part of larger groups, such as with friends or family, some of whom may not utilize TFS. These individuals are often referred to as the “wider travel party.”

Tax free shopping stimulates more visitors to come to the UK

Paul Barnes, the Chief Executive of AIR, commented on the lack of Chinese spending in theTelegraph, stating: “If you want your economy to thrive in the international visitor sector, you must appeal to the Chinese, and one thing that strongly appeals to them is shopping.”

Despite the positive impact that Chinese spending has had on British businesses, the tourist tax continues to alienate a significant spending power source—the world’s highest-spending holidaymakers.

Oxford Economics was commissioned by the Association of International Retail (AIR) to conduct an impartial assessment of the ramifications of reintroducing TFS.