The Hindu Business Line : Abatement rate hiked for service tax on packaged tours

The Government has hiked the abatement rate for levy of service tax on the packaged tours provided by tour operators. The abatement rate has been increased from the current level of 60 per cent to 75 per cent and a notification to this effect was issued by the Finance Ministry here today.

Currently, services provided by tour operators, in relation to a tour, attract service tax under ‘Tour Operators Service’. At present, a tour operator, providing package tour that includes provision of transportation and accommodation for stay, is liable to pay service tax on 40 per cent of the gross amount charged for such tour. In other words, 60 per cent of the gross amount charged is provided as abatement for the purpose of levy of service tax.

Gross Amount

Under the new dispensation, a tour operator would be required to pay service tax only on 25 per cent of the gross amount charged on packaged tour.

However, the gross amount charged should include cost of accommodation, food, transport arrangement, tourist guide, entry to monuments and other similar categories of expenditure.

The Tourism and Culture Minister, Ms Ambika Soni, had taken up the matter with the Union Finance Minister, Mr P. Chidambaram, in a letter dated August 30, 2006. This was followed up with a series of meetings at the official level between the two Ministries.

Notification

A presentation was made by the Tourism Ministry representatives to the Advisory Committee on service tax abatement in mid July this year.

The request of the Ministry of Tourism was examined by the Advisory Committee on Service Tax Abatement and the Committee had recommended prescribing the rate of abatement of 75 per cent on package tours.

This recommendation of the Committee was accepted by the Government and a notification prescribing abatement rate of 75 per cent to services provided by tour operators in relation to a package tour has been issued.