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Centre asks States to cut luxury tax
January, 28th 2009

The Union Ministry of Tourism has requested State governments to bring down luxury tax on hotels and sales tax on food and beverages, to bail out Indias recession and terror-hit tourism industry.

The ministry 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.

The ministry has written a letter to the Prime Ministers Office (PMO) to include tourism in the PMs economic stimulus package. Specifically, it has requested for higher reimbursement of service tax (90 per cent, as against 75 per cent at present), an increase in floor area ratio (FAR) and declaring hotel construction as infrastructure projects. Union Tourism Secretary Sujit Banerjee made a presentation to state finance ministers a few days ago on these issues.

Banerjee has requested that the luxury tax rate should be brought down to a uniform 4 per cent on actual tariff charged.
Sales tax on food and beverages varies from 8 per cent in Uttarakhand to the absurdly high figure of 18.62 per cent in Goa. The ministry has suggested that Sales Tax on food and beverages should be reduced and rationalised.

To ensure seamless travel between States, the Central government asked the states to introduce zonal permits for levying the tourist transport tax. It has recommended a quarterly or annual tax of Rs 25,000 or so for tourist transport vehicles. The aim is a single tax collection point for inter-state tourist vehicles, to avoid unnecessary harassment and delay to tourists.

This will enable the tourist transport operators to pay tax in their home state and carry the tourists without waiting for clearances at border crossings. The states can share the taxes based on a rational formula, like the number of kilometres covered in each State. This issue needs to be addressed urgently by northern states like Uttar Pradesh, Rajasthan, Delhi and Haryana, in view of the Commonwealth Games next year.

Most states are in the middle of the annual budget exercise at present, and are in a position to address these demands of tax cuts for the tourism sector. Before that, the Empowered Committee of State Finance Ministers will deliberate on the issue.

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