The Supreme Court on Sunday issued a short-term interim order not to levy value-added tax (VAT) on air tickets in response to a writ filed by a tourism association.

Supreme Court Justice Anil Kumar Sinha issued the orders, said Bimal Poudel, the Supreme Court’s spokesperson.

Nepal Association of Tour and Travel Agents (NATTA), the umbrella organisation of the country’s tourism industry, on July 27, filed a petition at the Supreme Court against the government’s decision to levy VAT on air services, demanding the withdrawal of the decision.

Through the budget, the government imposed VAT on air tickets.

“The Supreme Court has called both parties for discussion and has also asked the government to furnish a written clarification,” said Poudel.

The tourism association said the imposition of VAT will make air services more expensive.

Using every opportunity to boost its flagging revenue collections, the taxman kicked off the new fiscal year by imposing a 13 percent VAT on air tickets.

Industry insiders say flying is already expensive in Nepal, and the additional VAT will make it even more so.

Domestic airline companies started collecting VAT from their passengers effective July 17, but the international carriers were confused and had not implemented the new rule.

Officials of the travel trade and tourism industry say collecting VAT from passengers for international flights violates Nepal’s commitment to the International Civil Aviation Organisation (ICAO), a specialised agency of the United Nations.

According to the resolutions of ICAO, of which Nepal is a member, no tax on air ticket sales or use of international air transport should be levied.

The International Air Transport Association (IATA), too, urges all states to fully implement the ICAO resolutions by ensuring that international air (1 ICAO Doc. 8632) transport is fully exempt and international air transport enterprises have the right of reclaiming all VAT paid (zero-rated).

Tourism entrepreneurs worry that the series of taxes slapped on the tourism sector has made Nepal an expensive destination, and the consequences will become apparent in the coming years in the form of a drop in arrivals.