KATHMANDU, JUNE 21

The travel and tour industry has expressed concerns over the proposed tax on air tickets and packages announced through the budget for the fiscal year 2023-24, fearing that it will raise flight ticket prices and subsequently reduce tourist arrivals.

During a meeting today with Finance Minister Prakash Sharan Mahat, the executive members of the Nepal Association of Tour and Travel Agents (NATTA), the umbrella association of tour and travel agencies, strongly urged the withdrawal of the decision to impose a 13 per cent value-added tax (VAT) on air tickets. They expressed concerns over the increased cost for tourists.

Ramesh Thapa, chairperson of NATTA, highlighted that there is a strong possibility that many travellers may consider flying from airports located near the Nepal-India border where airfares are comparatively cheaper. He emphasised that if this scenario unfolds, it would lead to an increase in the prices of tickets sold by Nepali travel agencies, while online and tickets sold by foreign agents would become more affordable.

Thapa expressed concern that such a situation would result in a significant surge in ticket purchases from abroad, leading to job losses within local agencies, reduced government revenue and a detrimental impact on the business sector. Considering these potential consequences, Thapa requested the formation of an expert group comprising relevant stakeholders to thoroughly study and analyse the potential consequences and technical issues associated with implementing a comprehensive tax on all air tickets. He suggested following the recommendations of IATA and ICAO, which have already been implemented in other countries, before making a final decision on the matter.

Thapa raised concerns about the lack of transparency in the expenditure plan and collection mechanism for increased VAT on international air tickets. He also expressed reservations about the absence of provisions for date changes or ticket refunds and the unclear process of refunding collected tax amounts by the Nepal government. The sudden imposition of regulatory changes without coordination and consultation with the travel industry and stakeholders regarding a fixed tax on air tickets has unsettled NATTA.

In light of these concerns, Thapa suggested exploring the implementation an approach similar to that in Sri Lanka and India, where various international airlines collect airport service fee (ASF) and tourism service fee (TSF) as part of the tax. Additionally, NATTA has recommended modifying the current provision that allows Nepali travellers to purchase package tours using foreign currency obtained during their travels. Under the revised arrangement, travellers would use their acquired foreign currency, such as $1,500, for expenses and pay the travel agency the total cost of the package tour. In this case, the travel agency would assume sole responsibility for payment and impose a five per cent tax on the specified amount, ensuring ease of implementation and promoting transparency in business operations.

NATTA also requested exclusion of 13 percent VAT when imposing five percent commission, as this would result in double taxation for travellers who utilise all facilities in foreign country. Furthermore, they specifically requested not to impose the commission on outbound tours undertaken for family trips, business promotion, and seminar purposes, excluding package tours.

A version of this article appears in the print on June 22, 2023, of The Himalayan Times.