The Nepal Association of Tour and Travel Agents (NATTA) recently hosted an essential interaction program focusing on the impact of Value Added Tax (VAT) on airfare, a matter of significant concern for Nepal’s tourism sector. The event aimed to address the direct and indirect effects of the 13% VAT imposed by the Government of Nepal on airfares, bringing together key stakeholders from the private tourism sector to discuss its ramifications. This program also served as a platform to collect feedback and suggestions from industry representatives, offering an opportunity to gauge the broader impact of this taxation policy.
In collaboration with the Nepal Tourism Board (NTB), NATTA commissioned an in-depth study titled “Impact of VAT on Airfare: A Comprehensive Analysis of its Impact on the Nepalese Tourism Industry.” The research, carried out by the reputable consulting firm H.K.S.D. Associates, sought to explore the various consequences of the VAT on the tourism sector in Nepal, with a particular focus on how it affects airfare and the broader market dynamics.
In his welcome address, NATTA President Mr. Kumar Mani Thapaliya underscored the importance of tourism to Nepal’s economy. He noted that tourism is a cornerstone of the national economy, directly providing employment to millions of people and significantly contributing to the country’s foreign currency earnings. However, the introduction of VAT on air tickets, both international and domestic, has caused airfare prices to rise sharply.
This, according to Mr. Thapaliya, has made Nepal’s tourism industry less competitive, especially when compared to neighboring countries that have more attractive tax structures. He expressed concerns that these higher airfares could lead to a reduction in tourist arrivals and, consequently, adversely affect the entire tourism ecosystem, including airlines, travel agencies, and tour operators. Since Nepal is a landlocked country, air travel is essential for both domestic and international tourists, making the imposition of VAT on airfares highly impractical and damaging to the sector.
A representative from the Nepal Tourism Board (NTB) echoed these concerns, emphasizing the long-term implications of VAT on the tourism industry. The NTB representative pointed out that the Government of Nepal is actively working on various strategies to promote tourism, but additional taxes, such as VAT on air tickets, are making Nepal an increasingly expensive destination for travelers.
This, they argued, diminishes Nepal’s competitiveness with neighboring countries like India, Bhutan, Sri Lanka, and the Maldives, all of which offer various incentives to attract international tourists. The NTB further criticized Nepal’s current approach of increasing taxes on air travel, which, they argued, discourages both potential visitors and tourism businesses from operating in the country.
Research consultant Mr. Hari Silwal presented key findings from the study, revealing several significant impacts of VAT on airfares. Among the most alarming findings was the unprecedented increase in airfare costs since the introduction of VAT. This surge in prices has directly resulted in a decline in both domestic and international passenger numbers, a trend that could further exacerbate the already fragile state of the tourism industry.
Additionally, the research highlighted how VAT has reduced Nepal’s competitiveness as a tourism destination, especially when compared to neighboring countries that have adopted more tourist-friendly policies. The VAT imposition has placed additional strain on travel agencies and tour operators, who are already facing difficulties in retaining customers amidst rising airfare costs. Furthermore, the research indicated that the negative effects of VAT are not just limited to the private sector. The decline in tourist arrivals could ultimately lead to a reduction in overall government revenue, as tourism is a significant contributor to the national economy.
The program, attended by over 120 participants, including tourism entrepreneurs, representatives from travel agencies, heads of relevant associations, and media personnel, provided a platform for stakeholders to voice their concerns and offer potential solutions. Many attendees expressed the view that VAT, along with other unnecessary taxes, could severely hinder Nepal’s tourism growth. They urged the government to reconsider the current tax policies and focus on creating a more favorable environment for tourism businesses.
A number of key recommendations emerged from the discussions. One of the most prominent suggestions was the repeal of VAT on air tickets. Stakeholders unanimously agreed that this tax should be removed in the upcoming budget to make Nepal more attractive to tourists.
Additionally, there were calls for tax exemptions for the tourism sector as a whole, with the aim of encouraging greater foreign investment and increasing tourist arrivals. Furthermore, participants recommended that Nepal adopt competitive policies by studying the tax structures and incentives offered by neighboring countries, and implement measures to enhance Nepal’s appeal as a tourist destination. This would help position Nepal as a viable competitor in the global tourism market.
NATTA has pledged to present the recommendations collected during the interaction program to relevant government agencies and policymakers. The association remains committed to advocating for the removal of VAT on air tickets, asserting that this is crucial for sustaining and growing Nepal’s tourism industry. NATTA’s stance is clear: the tourism sector can only thrive if the government listens to the concerns of industry stakeholders and implements necessary amendments to support the sector.
Given that tourism is a vital component of Nepal’s economy, the government must recognize the importance of maintaining a competitive edge in the global tourism market by adopting policies that support the growth of the industry. With the collected recommendations and continued collaboration between NATTA, the NTB, and other stakeholders, it is hoped that Nepal will see a positive shift in its tourism policies, leading to a more sustainable and competitive tourism industry.
