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Centre asks states to lower luxury tax
January, 27th 2009

To bail out the tourism industry hit by the global slowdown, the Union government has requested state governments to bring down luxury tax on hotels and sales tax on food and beverages.

The Ministry of Tourism has also appealed to states to evolve a single-window permit system and rationalise passenger and road taxes. At present, luxury tax varies between 5 and 20 per cent.

For its part, the ministry has written a letter to Prime Ministers Office (PMO) to include tourism in the stimulus package. Specifically, it has requested higher reimbursement of service tax (90 per cent as against 75 per cent at present), increase in floor area ratio and declaring hotel construction as infrastructure projects.

Union Tourism Secretary Sujit Banerjee has made a presentation to the state finance ministers a few days ago on these issues.

The luxury tax on hotels varies from 5 per cent in Uttarakhand to 12.5 per cent in Delhi and 20 per cent in Assam and Meghalaya on published tariff. Some states charge this tax on actual tariff rate also. Banerjee has requested that the tax rate should be brought down to a uniform rate of 4 per cent on actual tariff charged. This will specifically boost the tourism and hotel industry in places like Delhi and Mumbai.

Global meltdown and Mumbai terror attacks have spelt doom for the tourism and hospitality sector, leading to widespread cancellation of hotel bookings across the country during the ongoing peak season.

The sales tax on food and beverages also varies from 8 per cent in Uttarakhand to 18.62 per cent in Goa. It was suggested that the sales tax on these items should be reduced and rationalised to make them cheaper.

To ensure seamless travel between states, the central government asked the states to introduce zonal permits for levying the tourist transport tax and a quarterly or annual tax of Rs 25,000 or so may be paid by the tourist transport vehicles. The aim should be a single tax collection point for inter-state tourist vehicles to avoid unnecessary harassment and delay to the tourists.

This will enable the tourist transport operators to pay tax in the home state and carry the tourists without waiting for clearances at border crossings. The states may share the taxes based on a rational formula, like kilometres covered in each state.

The issue of seamless travel needs to be addressed urgently by northern states like Uttar Pradesh, Rajasthan, Delhi and Haryana in view of the Commonwealth Games next year.

Most of the states are now in the midst of their annual budget exercise and demand of tax cuts for the tourism sector is likely to be addressed, a state government official said.

Before that, the Empowered Committee of State Finance Ministers will deliberate on the issue.

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