To reduce the tax incidence in the tour and hospitality sector, the Goods and Service Tax (GST) Council has tasked its Fitment Committee to work out an optional scheme for levying tax on the margins made by tour operators at a suitable rate.
Currently, a 5% GST is levied on gross tour costs without the facility of the input tax credit. “The Council at its meeting in Chandigarh on June 28-29 has given in-principle approval for formulating a margin scheme for tour operators. The Committee’s recommendation will likely be taken by the Council in its meeting after the August meeting,” an official told FE.
The fitment committee will work out the details of the scheme in consultation with stakeholders. Given the adverse impact on the tourism sector due to the pandemic, the fitment panel had suggested a ‘margin scheme’ option for tour operators under which GST has to be paid on value arrived at on a deemed value basis as a certain percentage of the gross tour cost representing fair competitive margin.
The margin scheme should be all-inclusive or includes either hotel accommodation or transport. The proposed scheme may reduce tax incidence on tour operators. “While the optional scheme for tour operators is expected to broadly benefit the sector by reducing the incidence of GST, despite higher rates than at present, we will need to await the details of the scheme, especially the valuation aspects,” said M.S Mani, Partner, Deloitte India.
Analysts reckon that in a margin scheme, the tax rate will likely be 12% or 18% as the tax base will decrease compared to the current practice of levying 5% GST without ITC on the entire tour package cost. Where the value addition of the tour operator is very high, then the incidence would go up with higher rates. Where the value addition is low, the incidence would be low.
The fact that ITC could be permitted for tour operators would also significantly reduce their GST outgo, despite being able to charge it from the customer, thereby improving their financial position and working capital.