Destination Development and

Institutionalization Strategies

In the OIC Member Countries

The appropriation model, where DMOs receive public funding that is raised primarily through hotel room

taxes, has been the most prevalent among DMOs.

There are a number of public sources of funding that

have been used to fund DMO activities including: hotel room taxes, alternative/tourism business tax, sales

tax, national, state/province, and local taxes. The largest source of public funding is hotel room taxes which

are considered a stable source of revenue and can be easily collected.

Hotel room taxes are mostly

compulsory in many destinations and as such are one the main sources of public funding for DMOs as they

generate large revenues at low cost and have the added benefit that they do not add to the tax burden of

local communities. However, some hospitality service providers have voiced criticism against hotel room

taxes as they perceive them as detracting from destination competitiveness.

Alternative tax such as taxes

on all local businesses can be used to generate revenue to be used for public funding of DMOs especially in

the case of RTOs. In some instances, only tourism related businesses are taxed such as accommodation,

car rentals, and attractions among others, but this creates a problem in terms of defining tourism related

businesses.

Some destinations have tourism/recreation taxes; however, they are more difficult to apply since not all

businesses who benefit from tourism can be identified, which makes the tax difficult to administer.

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National, state, and city taxes can be used by governments as a source of public funding for DMOs.

Governmental DMOs are highly dependent on funding from taxes, with municipal departments relying on

local taxes for funding. The main drawback of this funding source is that as opposed to the hotel taxes, the

financial burden is shouldered by local communities, in addition to the fact that DMOs will be competing

with a myriad of other entities for funding from this source.

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Both the cost recovery and the industry-led models depend on private funding sources. The cost recovery

model, which is based on DMOs charging fees for provided services, is gaining momentum as it seeks to

balance local community needs and tourism business needs. The industry-led funding model, also known

as Tourism Improvement District (TID) or TourismMarketing District (TMD), is based on industry players

contributing a self- assessed fee to a mutual fund run by the DMO. The self-assessed fee, which in some

cases can be compulsory for local industry players, includes fees from hotels, restaurants, attractions, car

rentals and other industry players. The TID model has been adopted by an increasing number of DMOs in

North America, while the UK has developed its own Tourism Business Improvement District (TBID)

model.

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With respect to private funding sources, DMOs have used a variety of tools to generate revenue streams to

support their activities and operations, including the following;



Advertising revenue, both print and cooperative sources, is an important source of private funding

for DMOs. Advertising links to tourism businesses on DMO websites can also generate revenues

for DMOs.

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

Membership revenues, in membership-based organizations, are raised through collection of fees

from members, however, this type of revenue is affected by “free riders” who benefit from DMO

activities but do not join its member ranks nor contribute to its efforts leading to further decline

inmembership and its associated revenues. Destinationmanagers in this type of organization need

Nissen, A. (2016).

Destination funding models: Can DMOs seek financial stability from their governments?

Retrieved from

https://destinationthink.com/

Ritchie, J.R. and Crouch, G. I. (2003).

The Competitive Destination: A Sustainable Tourism Perspective

Pike, S. (2008).

Destination Marketing: an Integrated Marketing Communication Approach.

London: Routledge.

Ibid.

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