Govt mulls 4% uniform luxury tax, abolition of service tax
December, 09th 2008
The government is considering a slew of measures to boost the tourism sector growth. The proposals include abolition of the 12.5%
service tax on tour packages, reduction in development charges for adding more rooms in the existing hotels and convincing the states to have a 4% uniform luxury tax across the country.
The proposals were discussed at a meeting between tourism minister Ambika Soni and prime minister Manmohan Singh last week, a government official, who did not wish to be identified, said.
The tourism minister has taken up the industry demands with the prime minister. The response so far has been positive. Some measures would be taken up shortly to boost the sector, he said.
He said the Centre would discuss the issue of luxury tax with states. Luxury tax, which is a state subject, in the country varies from 0% to nearly 15%. For example, Punjab levies a luxury tax of 8% above the tariff. Delhi charges 12.5% luxury tax on the published room rental. In various states such as Uttar Pradesh, luxury tax is levied on actual or negotiated rental.
Levies such as service tax of 12.5% make tour packages even more expensive and uncompetitive as compared to other nations, he said. He said there was a need to take urgent steps to boost tourism in the country. Foreign tourist arrivals, which generated a foreign exchange earning of $10 billion in 2007, are expected to be in negative territory in the next few months. Following the Mumbai terror attack, there have been huge cancellations by foreign tourists, resulting in a crash room tariff crash.
The hospitality sector has been demanding reduction in taxes for a long time now. Of the $500 charged by a five-star hotel for one room-night, $220 is the component of taxes such as service tax, luxury tax and fringe benefit tax (FBT).
We have been demanding complete removal of luxury tax and levying of other taxes on the actual tariff and not on the published one, Federation of Hotel & Restaurant Association of India (FHRAI) secretary general Harish Sud said.