Iceland wants to switch up its tourism tax to protect nature — and fight overtourism

Iceland wants tourists to flock to its bubbling hot springs, picturesque ice caps and lunar-like lava landscapes — but not at the expense of its residents or natural environment.

The tiny Nordic country known for fire and ice is not alone. From Amsterdam to Venice, hot spots across the globe have brought in measures to try to crack down on the negative impacts of overtourism, while retaining what is often a hugely significant source of income.

"We are trying still to mold the taxation system for the tourism sector for the future," Iceland's Prime Minister Bjarni Benediktsson told CNBC via videoconference.

"We would like to lean more towards a system where the user pays. As I see it, we would want to go more toward accession fees to the magnets, as we call them, around the country," Benediktsson said.

"By doing that, we could control traffic. So, at the height of demand, we could have a higher tax where we could control by amending the fees both within the day or between months, or during parts of the year. But this is still in the making."

Iceland's government reinstated its so-called tourism tax at the start of the year, seeking to raise funds for sustainability programs and mitigate the environmental impact of mass tourism.

The levy, which was suspended during the Covid-19 pandemic, applies a nominal fee of 600 Icelandic krona ($4.34) to hotel rooms, with varying costs also applied to campsites, mobile homes and cruise ships.

Benediktsson described his predecessor's reintroduction of the tourism tax as an "important decision" for the country. However, he says the government needs to go further to find the right balance.

As head of Iceland's pro-business, right-wing Independence Party, Benediktsson replaced Katrin Jakobsdóttir