STOCKHOLM, March 31 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
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
(Reporting by Daniel Dickson; Editing by Simon Johnson and