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Study of Taxes Levied on Tourism Sector

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Study of Taxes Levied on Tourism Sector 1 | P a g e Research Report Submitted to Ministry of Tourism Government of India Submitted by Business & Industrial Research Division IMRB International 2 | P a g e Acknowledgement The Research Study necessitated soliciting support from different individuals and institutions that played an important role to support us at every stage with their valuable inputs and guidance. We would like to take this opportunity to thank the officials of The Ministry of Tourism- Government of India, for their valuable inputs during the project review meetings and presentations. In particular, we are immensely grateful to Dr. L. K. Panwar (Secretary – Tourism), Dr. Ravikant Bhatnagar (A.D.G (MR)), Ms. Usha Sharma (A.D.G (T)) for their support and guidance. We would also like to thank Mr. Shailesh Kumar (Deputy Director), Ms. Neha Srivastava (Deputy Director), Ms. Mini Prasannakumar (Joint Director) & Mr. S.K. Mohanta (DPA Grade “B”) for their support during the execution of the study. We also take this opportunity to thank officials and representatives of industry associations in the Tourism sector in India such as Indian Association of Tour Operators (IATO), Indian Tourist Transporters Association (ITTA), The Federation of Hotel and Restaurant Associations of India (FH&RA), Federation of Associations in Indian Tourism and Hospitality (FAITH) whose inputs were valuable during the course of the research assignment. 3 | P a g e 1 Table of Contents 1 Table of Contents ........................................................................................................................... 4 2 Executive Summary ...................................................................................................................... 7 3 Tourism Sector in India ............................................................................................................... 9 4 Economic Impact/ Contribution of Travel & Tourism ..................................................... 12 5 Travel & Tourism’s contribution to Employment .............................................................. 14 6 Tourism Sector contribution to Gross Domestic Product .............................................. 16 7 Total No. of Foreign Tourist Arrivals & Foreign Exchange Earnings ......................... 17 8 Visitor Exports by Countries ..................................................................................................... 19 I. Visitor Exports by Top 15 countries .......................................................................... 19 II. Visitor Exports by Country ............................................................................................ 20 9 FDI (Foreign Direct Investment) in Indian Tourism sector .......................................... 24 10 Defining Tourism for Taxation Purpose ............................................................................... 26 11 Indirect Taxes applicable to the Tourism Sector ............................................................. 27 I. The Major Taxes applicable to the Travel & Tourism Sector ........................... 27 II. Service Tax .......................................................................................................................... 28 . Service Tax on key Taxable Services in the Tourism Sector ........................... 28 III. Central Excise Tax ............................................................................................................ 31 IV. Taxes and charges levied on Air Travel ................................................................... 32 i. User Development Fees ................................................................................................. 33 ii. Passenger Service Fee .................................................................................................... 34 V. Value Added Tax – (VAT) .............................................................................................. 35 i. Rate of VAT levied on key components of the Tourism Sector ....................... 35 ii. Rate of VAT (Value Added Tax) levied on Airline Turbine Fuel (ATF) .......... 37 VI. Luxury tax ........................................................................................................................... 39 VII. Entertainment tax............................................................................................................. 41 i. Entertainment Tax on Amusement Parks ................................................................ 41 ii. Entertainment Tax on Film Screenings .................................................................... 42 iii. Entertainment tax per Cable TV/DTH subscriber per month ........................... 43 iv. Entertainment tax on Events ....................................................................................... 45 4 | P a g e Entertainment Tax on events in major states in India is as follows ........................ 45 VIII. Taxes on Tourist Transport Vehicles ......................................................................... 46 i. Motor Vehicle Tax/Road Tax ......................................................................................... 46 ii. Toll Taxes ............................................................................................................................. 48 12 Incidence of Taxes on Inbound Tourists ............................................................................. 49 13 Total Indirect Tax Incidence – An Illustration ................................................................... 50 14 Indirect Tax Incidence – Comparison with competing countries ............................... 51 15 Direct Taxes Applicable in India ............................................................................................. 54 I. Corporate Tax .................................................................................................................... 54 II. Wealth Tax .......................................................................................................................... 55 III. Taxes on Immovable Property..................................................................................... 55 I. Stamp Duty ......................................................................................................................... 55 II. Registration Tax ................................................................................................................ 57 III. Local Property Tax ............................................................................................................ 57 IV. Depreciation Policies on Fixed Assets ....................................................................... 58 V. Direct Tax Benefits available in India ....................................................................... 64 16 Incentives Available to the Tourism Sector through Foreign Trade Policy ............ 67 17 State Level Incentives Available to the Tourism Sector ............................................... 68 18 Taxation related Issues faced by Tourism Sector............................................................ 74 19 Gems & Jewellery Industry ....................................................................................................... 78 I. Gems and Jewellery Industry in India ...................................................................... 78 II. Gems & Jewellery Industry – Imports & Exports ................................................. 79 IV. Gems & Jewellery Industry – Major Export Incentives ...................................... 81 20 Textile & Apparel Industry ........................................................................................................ 82 I. Textile & Apparel Industry ............................................................................................ 82 II. Textile & Apparel Industry – Imports & Exports .................................................. 83 IV. Textile & Apparel Industry – Major Export Incentives ....................................... 84 21 Handicrafts Industry ................................................................................................................... 86 V. Handicrafts Industry – Tax Rates ............................................................................... 87 VI. Handicraft Industry – Export Incentives.................................................................. 87 22 Chemical Industry ........................................................................................................................ 88 5 | P a g e I. Chemical Industry – Imports & Export .................................................................... 88 II. Chemical Industry – Tax Rates ................................................................................... 89 III. Chemical Industry – Major Export Incentives ....................................................... 90 23 Pharmaceutical Industry ............................................................................................................ 91 I. Pharmaceutical Industry – Imports & Export ........................................................ 91 II. Pharmaceutical Industry – Tax Rates ....................................................................... 92 III. Pharmaceutical Industry – Export Incentives ........................................................ 92 24 Plastics and Plastic products .................................................................................................... 94 I.
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