Tour operators lose GST battle

A group of tourism businesses which specialise in bringing international groups to New Zealand has lost a nine year battle to stop the tax man taking a chunk of their income in goods and service tax.

Prime Minister John Key and Revenue Minister Peter Dunne yesterday told operators at the In-bound Tour Operators Council's annual conference the law would be changed to make it clear that GST on facilitation fees - the fees charged by New Zealand companies to overseas wholesalers who sell their tours - would have to be paid.

The in-bound tourism industry had fought the tax department on the fees since Labour introduced a law change in 2001 which meant GST was payable. Key said the law change was designed to clarify a situation which had led to confusion and frustration.

"We intend to make the law changes as soon as possible that will make it clear that GST should be applied at the standard rate to all facilitation fees.

"That is, and always has been the intention of the law that was enacted in 2001."

But council president Brian Henderson said it was a blow to operators who already faced a tough environment.

The council had been pushing to revert to an interpretation it received from the tax department in 2001 which it believed meant businesses would not have to pay any tax on the facilitation fees.

Henderson said the change would make it difficult to compete with businesses outside New Zealand who could sell packages here and would not have to pay the tax.

Key said the Government would give businesses an exemption for the year to July 2008 and Inland Revenue would not chase companies who had not paid the tax in the year to July 2007.

But Henderson said it still meant businesses would have to find the money for the last year. "Realistically for the next year businesses will have to wear that cost - it's a substantial financial penalty, particularly in this climate."

Henderson did not believe the change would send any business under but said it would make it harder for operators to start marketing overseas for the summer season.

He said the council, which has 34 members, would continue to fight the change as part of the select committee process.