Kerala has approached the Centre seeking some key changes in the Goods and Services Tax (GST) as it applies to the tourism sector.
In a note submitted to Union Minister of State for Tourism K.J. Alphons here on Saturday, the State sought decisions to facilitate levying of Integrated Goods and Services Tax (IGST) by hotels and resorts so that tour operators could claim Input Tax Credit (ITC). In the note, handed over to the Union Minister by Tourism Minister Kadakampally Surendran, the State also sought a presumptive tax rate of 1.8% on small tour companies to overcome the post-GST difficulties.
Cascading of tax
The government has also demanded a change in the definition of tour operators to include selling of standalone travel related services and to allow ITC for tour operators at the GST rate of 5%. The State government has pointed out that hotels and resorts were not at present being allowed to levy IGST, which prevented inter-State tour operators from availing ITC on these costs. “This is contrary to the ‘One Nation, One Market’ philosophy. Such cascading of tax on tax would place a burden of up to 38% tax on domestic travellers,” the note says. It also explains that the presumptive tax rate of 1.8% on small tour companies would help avoid compliance irregularities on account of the small size of tour companies. The 1.8% presumptive tax on gross billing would translate to an effective 18% tax on profits (typical margins being about 10%). Precedence has been set for air ticketing services (which allows agents a presumptive tax of 0.9% on domestic and 1.8% on international tickets.)
Change in definition
The State has further sought a change in the definition of ‘tour operator’ to include all nine support services defined in notification 11/2007-Central tax (rate) under ‘tour operation company/travel agency.’ Tour operators are expected to sell packages and apply a 5% GST. But, ITC is not allowed on this rate, which results in cascading of tax. The State has also sought scrapping of automatic extension of room rent tax rate on ancillary services as this would increase tax burden and push up the prices. Another demand put forward is that service exports, as defined by the DGFT, be zero-rated for GST purposes.
