WILLEMSTAD – Curaçao's Advisory Council has raised concerns that the proposed Tourist Entry Tax could deepen the government's financial dependence on tourism at the same time that the country says it wants to diversify its economy.
The concern stems from the enormous amount of revenue the government expects the tax to generate. Current projections put receipts at approximately XCG 82 million in 2027, XCG 115 million in 2028, XCG 120 million in 2029 and nearly XCG 126 million by 2030.
That means an increasingly significant part of government revenue will depend directly on the number of visitors arriving in Curaçao.
The Advisory Council considers that development particularly noteworthy because projected revenues from wage and income taxes are declining in nominal terms despite continued economic growth.
The government acknowledges that the Tourist Entry Tax creates a connection between public revenue and tourism performance but argues that the measure should primarily be viewed as a broadening of the tax base. Tourists use Curaçao's roads, infrastructure and other public services, the government argues, and should therefore contribute toward their costs.
The question is whether charging visitors approximately $65 could itself affect tourism demand.
The Curaçao Tourism Development Foundation has reportedly indicated that it does not expect the tax to cause a significant decline in visitor numbers. However, no public Curaçao-specific study has been presented calculating how many potential visitors could reconsider their trip because of a charge at that level.
International research suggests that sensitivity to tourism taxes and higher travel costs can differ considerably depending on the destination and source market.
Research involving the Maldives, another small economy highly dependent on tourism, estimated that a 10 percent increase in tourist taxes was associated on average with a 5.4 percent decline in tourism demand, although the impact differed considerably between source markets.
Older research involving Aruba similarly indicated substantial differences in price sensitivity. The estimated short-term price elasticity was approximately -0.12 for U.S. visitors and close to zero for Dutch tourists, while Venezuelan visitors were considerably more sensitive, with an estimated elasticity of -0.77.
Those studies cannot automatically be applied to Curaçao, but they demonstrate why the effect of the proposed tax on visitor behavior deserves closer examination before the government becomes heavily dependent on the anticipated revenue.
The issue becomes increasingly important as Curaçao's tourism industry expands. Higher visitor numbers would produce greater Tourist Entry Tax revenue, while an unexpected tourism downturn could simultaneously affect hotels, restaurants, employment, consumption taxes and the new entry-tax receipts.
That creates a potential contradiction in government policy.
Curaçao has repeatedly identified economic diversification as an important long-term objective so that the country becomes less vulnerable to developments in a single industry. Yet the Tourist Entry Tax could make government finances substantially more dependent on tourism.
There is a legitimate argument for asking visitors to contribute more toward the public infrastructure and services required to support a rapidly growing tourism industry. But there is an equally legitimate question about how much of Curaçao's future budget should depend on tourists continuing to arrive in ever-growing numbers.
The Tourist Entry Tax could strengthen government finances considerably. At the same time, the projections through 2030 show that Curaçao will have to manage a new risk: when tourism performs well, the Treasury benefits significantly, but when tourism falters, the consequences could increasingly be felt directly in the national budget.