The Icelandic government has published proposals to raise the value added tax (VAT) on accommodation, restaurant meals and attractions from 7.0% to 25.5% as of the 1st May 2013. This proposal more than trebles the tax on all those services that tourists need to purchase.
Two-thirds of Iceland's population live in Reykjavik, so hotel use is dominated by visitors: 90% of hotel rooms in July 2012 were occupied by foreigners. This tax is aimed directly at an export market.
The inbound tourism industry has been one of Iceland's success stories over the last fifteen years. Foreign arrivals in 1997 were 210,000, in 2011 they were 598,000. A lot of this growth is recent: 2012 is set to match 2011's annual increase of more than 16% growth in foreign visitor arrivals. The number of nights these people stayed increased by 20%.