Tour operators set to get GST relief under new ‘margin scheme’

To reduce the tax impact in the tourism and hospitality sector, the Goods and Services Tax (GST) Council Adjustment Committee has suggested levying a tax on the margins earned by tour operators at a appropriate rate.

Currently, 5% GST is levied on the gross cost of the trip with no input tax credit available.

The panel also proposed to “regularize” the 5% GST paid by ice cream parlors without an input tax credit (ITC) before October 2021. The GST on ice cream parlors will, however, remain at 18% with the ITC. There will be no refunds for salons that paid the 18% tax in the period up to October last year.

These recommendations will be examined by the GST Council which will meet in Chandigarh on June 28 and 29.

Given the negative impact on the tourism sector due to the pandemic, the panel suggested a “margin scheme” for tour operators under which GST must be paid on the value calculated on the basis of a value deemed to be a certain percentage of the gross cost of the trip representing a fair competitive margin. The margin plan should be all-inclusive or on hotel accommodation or transportation. This decision could significantly reduce the tax impact on tour operators.

A section of ice cream parlors were under the impression that they were covered by catering services and therefore collected and paid 5% GST since July 1, 2017 with no ITC. As the sector has been hard hit by the pandemic, paying the 13% differential of the past period on its equity would have been expensive. The Ice Cream Makers Association of India had appealed for the regularization of the 5% GST paid before October 2021 when it was clarified that ice cream parlors were collecting 18% GST with the ITC.

These form part of the agenda distributed to States in two volumes prior to the Council meeting. The first 255-page volume discusses clarifying the refund claim under the reverse fee structure, changing the formula for calculating the refund of unused ITCs due to the reverse fee structure, the power to issuing recurring show cause notices to the CGST and SGST authorities regardless of the domain assigned to each other, mandatory registration of those who provide goods or services through e-commerce operators and development of a new return system.

The second volume, 279 pages, deals with the recommendations of the law committee and the planning committee.
In view of the ruling of the tax courts that the storage or warehousing of cotton in bales or ginned form is not exempt from the GST, the equipment panel suggested covering the item under fibers raw vegetables such as cotton and to be exempt from the GST.

Among other things, it was also suggested to clarify that the import and rental of hovercraft inside and outside GIFT City are exempt from IGST.