Leading hoteliers, travel and aviation companies have written to the government to withdraw the service tax on hotel accommodation and air travel proposed in the Union Budget tabled on Monday.
Finance Minister Pranab Mukherjee had proposed to introduce a service tax of five per cent on hotel room charges and three per cent on air-conditioned restaurants that serve liquor. Additionally, an increase in service tax on air travel by a minimum of Rs 50 and a maximum of 10 per cent on the base fare on domestic routes was also proposed.
This follows the flat 10 per cent service tax on both domestic and international travel enacted in last year’s budget.
Vivek Nair, chairman, World Travel & Tourism Council India Initiative, stated in the letter, “The entire industry is worried that just when it was recovering from the effects of the recession and other calamities, it has been confronted with very adverse taxation proposals in the Union Budget. The sector needs and has been requesting for fiscal reforms and incentives to encourage growth.”
The body argues that the service tax which goes in the kitty of the Centre brings additional burden on hotel properties as many states levy their own luxury tax. For instance, Kerala and Goa, two favourite tourist destinations, charge a 12.5 per cent luxury tax on room charges. Tamil Nadu and Delhi charge 10 per cent and 12.5 per cent, respectively.
The body says the total tax could go as high as 23 per cent as some states charge luxury tax on the published rate and not the actual rate. In comparison, Indonesia, Malaysia or Singapore charge three per cent as luxury tax.
India got only 5.58 million foreign tourist arrivals (FTAs) in 2009, compared with 50.9 million in China, 23.6 million in Malaysia, 14.1 million in Thailand and 6.3 million in Indonesia. The Indian government has set a target of 10 million FTAs by 2020.
The industry body has also asked the Finance Ministry to roll back the additional service tax proposed on air travel, which is Rs 50 in the case of domestic journeys, Rs 250 on international journeys by economy class and 10 per cent on business class on domestic travel.
“This levy will directly affect both foreign and domestic tourists, as it will increase the cost of air fares and tour packages. Added to the high tax on aviation turbine fuel, this will greatly discourage air travel by both foreign and domestic tourists,” the letter further stated.
The government had proposed a flat 10 per cent service tax on both domestic and international travel during last year’s budget.
