asked the Chancellor of the Exchequer what assessment he has made of the effect on the tourist industry of the extension announced in the Budget of value added tax to the gross margins earned by tour operators on sales tours within the European Community; and if he will make a statement.
Incoming and internal tourists are already charged United Kingdom VAT on the full price paid for goods and services liable at the standard rate of tax. The scheme should not affect the total amount of VAT chargeable by the United Kingdom sector of the tourist industry, but it will affect the way in which the tax is accounted for to Customs and Excise by tour operators supplying United Kingdom tours.Outgoing tourists proceeding to other member states and buying from United Kingdom tour operators will pay a small element of United Kingdom VAT for the first time from I April 1988. It is difficult to predict accurately the effect on tour operators' prices because the Association of British Travel Agents has been unable to supply an estimated weighted average of what its members' gross margins on standard-rated supplies will be. However, assuming that the extra VAT is passed on in full, it is estimated that the price of typical packages to destinations in other member states will be increased by about 1 per cent. This is unlikely to have any significant effect on the number of packages sold.