Wellington, Aug 12 NZPA - A messy tax dispute worth millions of dollars between inbound tour operators and the Inland Revenue Department will be sorted out through legislation and a reprieve over disputed tax.

Tour operators have been furious with the IRD after they say it changed the rules and pursued them for back taxes on the fees they receive from overseas.

Tourism Minister John Key and Revenue Minister Peter Dunne announced today there would be a law change to clarify GST on facilitation fees charged to inbound tour operators.

GST would be payable in the future, but the IRD would no longer pursue the operators who have zero rated the fees since 2001.

Mr Key said lack of certainty about whether GST should be applied to facilitation fees had led to confusion and frustration over the past nine years.

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

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

Mr Dunne says the uncertainty, coupled with inconsistent application and various interpretations of the law over the last nine years have not been helpful.

"During that period, a number of operators evidently zero-rated the offshore facilitation fees, potentially facing back taxes," Mr Dunne said.

"To ensure that any adverse effects are minimised by the legislative clarification, the Government will also introduce a transitional provision for the year to 1 July 2008 that will allow all inbound tour operators to zero-rate facilitation fees charged to offshore tour operators for that period."

That provision will apply for one year only, and those who have already accounted for GST on those fees will be able to request a refund for that year.

"From then on, all such fees will be standard-rated for GST purposes, as will be clearly and unambiguously spelt out in the law," Mr Dunne said.

Inland Revenue had advised the Government that it will not pursue the cases of inbound tour operators who zero-rated these facilitation fees in the period to July 1 2007.

Tourism Industry Association New Zealand chief executive Tim Cossar said it was a pragmatic resolution and would give some certainty.

"While this is not exactly what inbound operators wanted, we recognise the significance of any change to tax laws. It is clear the Government has listened to the tourism industry," Mr Cossar said.