Thiruvananthapuram: With the former UDF government’s decision to persist with luxury tax for homestays hurting tax collection, there is a move to introduce a compounding tax regime for homestays. Apart from simplifying tax administration process, it will bring unregistered homestays within the tax net.
“Homestays, or the unbranded segment, is turning out to be the preferred accommodation of those using the online booking route. The state would like a share of the pie but without causing any major hassles,” a top Tourism Official said. The plan was to introduce compounding system in the 2015-16 Budget but it was not to be.
Now, homestays with two or more rooms are charged a luxury tax of 0.5 percent. A homestay doing a business of Rs one lakh a month need to pay Rs 500 as luxury tax. “The compounding system will be as benign as the luxury tax on homestay owners. The advantage is the state gets a guaranteed amount as tax from homestays annually,” the tourism official said.
Compounding will also spare both the homestay owners and the tax department the intricate and sometimes confusing process of tax administration. “It is hard and distressing work for tax officials. Records have to be maintained, taxes have to be calculated and regular monitoring is called for. Perhaps the money spent on the process could even be higher than the money collected from homestays as tax,” a top official said.
Compounding system, on the other hand, is easy to administer. “You just have to fix a base rate and the collection is automatic,” the official said. Homestay owners will also be spared of the quirks of tax administration, like frequent notices from the Income Tax Department that can trigger fears of harassment.
