NEW DELHI: Package tours could become cheaper as the government is looking at a proposal to allow tax credits to tour operators, which will reduce the incidence of the goods and services tax on those booking holidays.
The GST Council is expected to take a call on this at its next meeting, said an official privy to the council’s deliberations. “The issue had figured in the last meeting of the council, but decision was deferred for next meeting,” the official said.
According to this person, the council has two options on the table: one, 12% levy with credit for tax paid on all inputs; and two, credit for input services in the same line of business with levy being at 5%. At present, tour operators pay 5% tax on tours, but without any input tax credit. The tour industry has been lobbying for input credits as the total tax incidence on tours, according to them, is much higher at about 25% or more.
A tour normally consists of hotel accommodation, local sightseeing and entry to monuments. While entry to monuments has been exempted in the last GST Council meeting and guides are mostly unregistered, industry insiders say there is still an incidence of 15-20% tax on the tour, depending on the room rate of the hotel selected. GST is levied over and above this, taking the total tax incidence to close to 25%, increasing further if the package is sold to another operator because of the embedding of taxes.
Typically, travel industry cross sells among operators. This compares with effective tax rate of 10% on tours in most Asean countries, making tour packages in India uncompetitive. The Industry had represented to the government highlighting the issues.
Tax experts say embedding of taxes is a huge issue for the industry and needs to be addressed. “Credit for hotels is only available if there is a local office in the state of the tour operator,” said Bipin Sapra, partner at EY. “A deemed credit mechanism across state boundaries may be the answer to allow free flow of credit for this sector,” he said.
ET View: Sound In Principle
Offering tax credit makes sense. It is sound in principle as the GST chain remains intact. It also lowers costs as the tour operators will get credit for all the taxes paid on inputs, and benefit the travel industry. The GST Council should use the same principle to offer tax credit to eateries that they do not have now. The idea is to have a clean tax system that will bring down costs for producers and retail prices for consumers.