The federation, the apex body of the sector which represents hotels, restaurants, resorts, tour operators and travel agents, has been in talks with the finance ministry.
NEW DELHI: The Federation of Associations in Indian Tourism and Hospitality has sought amendments to the draft Goods and Services Tax law that include making an exception for tourism and hospitality businesses, and classifying them under 6-8 per cent tax slab as some other countries do.
The federation, the apex body of the sector which represents hotels, restaurants, resorts, tour operators and travel agents, has been in talks with the finance ministry and governments of various states such as Rajasthan, Maharashtra and Karnataka on the issue.
“We are the sounding board of the government for the sector and we feel the single biggest game changer in tourism will be GST. It is therefore important for us as a federation to make the government realise how important it is and at what slab we are put in. We are therefore doing a lot of work around GST,” said the federation’s chairman Nakul Anand.
In addition to the proposed VAT and luxury tax which currently have a set off in the draft law, the federation’s other demands include a GST set-off which subsumes inter state levies on transportation, state electricity cesses and liquor tax, and making an exception for the sector in the classification of export services.
The federation also recommends a 0 per cent rating on foreign exchange earnings once the exception is made.
“Indirect taxation is very high in India and is in the range of 18-25 per cent. Globally, in markets where GST has been introduced, the tourism rate is half of the GST rate and is under 10 per cent. Everyone recognises it as very critical. It is important to stimulate tourism demand because it has an economic multiplier effect on GDP and on sectors like jobs. The tax rates need to be competitive,” said Aashish Gupta, consulting CEO of the federation.
In its proposal, the federation has cited examples of France, Italy and Switzerland, which provide separate tourism tax slabs of 5.5 per cent, 10 per cent and 3.6 per cent respectively compared to the standard GST rates of 19.6 per cent, 20 per cent and 7.6 per cent respectively for other sectors.
The federation has also sought an exception under section 2 (44) of the draft GST law for the sector as the section classifies export services as services that are consumed abroad.
“Ours is perhaps the only industry in India that not only creates foreign exchange here, but also retains about 98 per cent of it. Tourism and hospitality services are intangible services which can be only be consumed within India. We are a deemed exporter of services, so there needs to be an exception for the sector in the section. If this amendment does not happen, foreign exchange earning tourism and hospitality services run the risk of not being classified as an export service,” said Anand.
He said several state governments have sought more details from the federation on the subject and have expressed their support.
Rajeev Kohli, joint managing director of Creative Travel, which specialises in inbound travel, called it a step in the right direction.
“We are a segment of the economy which is overtaxed and we are paying high double-digit taxes at various levels. If the government wants tourism to be a high driver of growth, then it is time to think differently. Tourism and travel cannot be perceived as luxury anymore,” he said.