Tourist taxes should be "treated with caution" and would require a significant cut in the rate of VAT paid by hotels, according to the All-Party Parliamentary Group for Hospitality.
In a report MPs said the UK hotel sector is already the second highest taxed in the EU, adding that in other countries where a tourist tax has been introduced rates of VAT on hospitality businesses have been lowered.
A number of challenges in implementing a levy were also noted, including the method of collection as well as ensuring fairness between home-sharing platforms such as Airbnb and traditional accommodation providers.
Steve Double MP, chair of the All-Party Parliament Group for Hospitality, said: "Our report recommends that any moves by councils across the UK to introduce a tourist tax need to be treated with caution. Local authorities must fully examine the impacts on consumers, businesses and the local economy before taking any decisions, especially in regard to the overall tax burden that is currently present on hospitality and tourism businesses."
The report has acknowledged that local authorities are under pressure and looking for new revenue streams but said further taxation on the hospitality industry was likely to create opposition.
Kate Nicholls, CEO of UKHospitality, which acts as secretariat of the group, added: "Support for local services and communities is of the upmost importance, but it cannot be at the sole expense of one faction of hospitality. Hotels in the UK already contribute heavily in taxes and to introduce another levy on an already highly-taxed industry is cause for concern.
"It is also important to note that home-sharing platforms such as Airbnb will always be outside of this tax, meaning that hotels will be hit hardest. The latest findings highlighted in the report also go as far to show that the introduction of a tourist levy would discourage visitors. Local authorities need to press pause on this dash for cash and properly revaluate the wider impacts of a tourist tax."
Edinburgh Council has proposed the introduction of a Transient Visitor Levy (TVL) of £2 per night or 2% of total room cost, chargeable all year round on all forms of accommodation, but capped at seven nights. It has said this would raise between £11.6m and £14.6m each year. However it can not implement plans unless the Scottish government passes legislation giving it the power to do so.
Westminster and the Highlands are among those councils to have mooted the idea of a tourist tax. But a number have also rejected proposals, including the Welsh government, as well as councils in Cambridge and Cornwall.