Budget 2024 Expectations: Lower ATF price, income tax to boost India’s travel & tourism: Rajesh Magow of MakeMyTrip

  • Budget 2024 Expectations: MakeMyTrip CEO Rajesh Magow expects more private sector participation and a deduction under income tax along with input tax credit under GST for the travel & tourism industry

Nikita Prasad
First Published30 Jan 2024
Rajesh Magow, Co-founder & Group CEO, MakeMyTrip
Rajesh Magow, Co-founder & Group CEO, MakeMyTrip

Finance Minister Nirmala Sitharaman will unveil the Interim Budget for the financial year 2024-2025 (FY25) on February 1, 2024, which is likely to keep the focus on sustaining nominal economic growth, but may not involve any major policy changes. 

Since 2024 is an election year with Lok Sabha elections in May, the finance minister will present an Interim Budget or a Vote on Account on February 1, rather than a comprehensive annual budget. After the formation of the new government, the new full Budget is expected in July this year.

Sitharaman's declaration that it will be a vote of account suggests that no significant policy announcements are likely expected in this interim budget. A Vote on Account is merely an interim authorisation to spend money, as opposed to a full Budget that includes details of expenditures and receipts.

Analysts say that the upcoming pre-election interim budget occurs at a juncture when the overall economic landscape appears stable, which is underpinned by the easing of financial conditions, and robust macroeconomic data.

Coming to sector-specific views, the travel and tourism sector represents a vital economic driver for the Indian economy. With a 5.8 per cent contribution to India’s gross domestic product (GDP) (in 2022) and the government’s target of achieving $1 trillion by 2047, the sector forms a strong force multiplier - across allied sec​tors, employment generation and foreign exchange receipts.

According to a Bernstein report, India has gradually been gaining share of the global travel market, now representing two per cent of tourism receipts globally, up from 0.7 per cent in 2000. Domestic travel in India is already the fifth largest globally and is expected to become the third largest by 2027. 

Also Read: Budget 2024 Expectations: Streamlining TCS to GST credit —here's what travel & tourism sector expects this year

Rajesh Magow, Co-founder and Group CEO of MakeMyTrip in an interview to Mint's Nikita Prasad, said that the government should bring in changes such as reduction in income tax and jet fuel prices to help boost India's travel and tourism sector. The company also expects a rationalisation of goods and services tax (GST) rates from Interim Budget 2024 to make hotel stays more affordable for customers and tourists.

Edited excerpts from the interview:
 

1. What are your major expectations from Interim Budget 2024 which could likely impact the travel and tourism sector in near-term? Will any of the policy announcements impact the sector next month, before the Model Code of Conduct comes into effect?

Firstly, a weighted deduction under income tax along with input tax credit under GST on CSR funds deployed to improve tourist destinations will garner larger participation from the private sector. Such a symbiotic relationship not only helps preserve tourist sites but also ensures all-around sustainable development.

Secondly, addressing the challenge of overcrowding in popular destinations, the Hon'ble Finance Minister could encourage corporations to invest their CSR funds in improving tourist destinations. This can lead to developing new attractions and upgrading existing ones while offering tax benefits to the corporations involved. The government should also offer tax incentives to hotels and homestays for adopting sustainable practices.

Also, learning from our Asian neighbours, implementing visa-free entry for tourists from India’s top 15 feeder markets can help substantially increase foreign tourist arrivals. This initiative will not only put India on a competitive footing in the global tourism market but also foster a reciprocal environment.

2.What are the current challenges that travel services providers are facing in terms of taxation? How do you think the government should streamline TCS and GST input credit for the tourism industry?

The absence of GST credit for hotel construction in India presents a significant hurdle in the growth of the nation's hospitality sector. Rationalizing GST rates and allowing for GST credit could lead to more affordable hotel stays. Such a move would not only make accommodations more accessible to tourists but also increase India’s organised hotel supply.

The finance minister should also take this opportunity to remove all disparities between Indian and overseas Online Travel Agencies (OTAs) and different modes of payment. For example, OTAs operating a permanent establishment in India are mandated to collect 20 per cent TCS for spends above 7 lakhs by an individual in a financial year on overseas travel including tour packages.

In contrast, the foreign based OTAs do not collect TCS, and non-applicability of GST or direct taxes allows them to offer lower costs to Indian citizens. The differential regulations, which give unfair advantage to foreign based entities, needs to be addressed.

Similarly, disparities between ecommerce operator and ecommerce suppliers in domestic market should also be removed. For example, currently, a customer pays a five per cent GST charge when booking a non-AC bus through an ecommerce platform. This charge is zero for a direct booking from bus operator irrespective whether it is done in online or offline mode. This is against the spirit of Digital India.

3.ATF price was cut by 4% in January for the third straight month. Despite price reductions, how do you think the government can support airline operations to manage costs efficiently? How much reduction on VAT do you see for jet fuel?

Aviation Turbine Fuel (ATF) accounts for a significant portion of the airline's operational costs. While the central government has encouraged state governments to reduce VAT on ATF, the Finance Minister can consider a broader policy framework that indirectly affects the cost of ATF, like central excise duties and customs duties.

The reduction in ATF could catalyze a domino effect, increasing air travel frequency, bolstering airport revenues, and enhancing connectivity to various tourist destinations. Improved accessibility can significantly boost tourism, benefiting local economies and contributing to national economic growth.

4.MakeMyTrip delivered its highest-ever quarterly gross bookings and revenue in the December quarter led by high demand in leisure travel bookings. Going forward, what will be the growth drivers for the company in 2024 - with the year having impending events including general elections and 2 budget sessions?

Our bus ticketing business witnessed robust growth in the December quarter. redBus is now also available in Hindi, giving us a higher share of new customers from tier 2 and  tier 3 towns particularly for bookings on Road Transport Corporations (RTCs.) 

We continue to work with various state RTCs to bring them online. The government-controlled bus inventory on our platforms has increased meaningfully with the onboarding of UP State RTC and additional inventory being made live by Kerala and Telangana RTCs. A new RTC, Chandigarh Transport Undertaking has also come onto the platform in this quarter. 

We have undertaken tech optimisation to improve real-time inventory status for RTCs to lower booking errors. The overall sentiment amongst private bus operators is also very positive now and we expect a steady increase in private bus supply over the next few quarters and should help drive growth.

5.Are there any new complaint-resolving mechanisms in place for 2024 to enhance user experience? How will MakeMyTrip leverage automation and artificial intelligence (AI) to adapt with the evolving market trends and maintain an edge among competitors?

With the demand for business and premium economy tickets showing an increasing trend, we have now completely revamped the business class funnel for international flights to provide a better booking experience to our premium users and cater to their specific needs and preferences. 

We have introduced an industry- first enhanced booking process for business-class flight tickets where customers can preview visuals of cabin comfort, meals, in-flight entertainment, and other amenities. 

We have also strengthened our UAE proposition wherein customers now have the option to seamlessly buy eVISA for UAE during their International flight booking process on our desktop site. The initial response to this has been positive and this feature will soon be launched on our Apps as well. 

Finally, we have enhanced our price lock feature to now include multi- contract price lock, where customers can choose from different time durations for which the prices can be locked. We have also upgraded the multi-room booking experience. Users are now shown more suitable room combination suggestions and they can specify their preferences explicitly, simplifying their decision-making process. 

6.Reports say that the tourism sector is projected to contribute $250 billion to the country’s GDP by 2030. However, after COVID-19 pandemic and geopolitical conflicts which stood out as big headwinds, how well do you see your company contributing to the sector in the next 2-3 years?

Despite the short-term headwinds, our growth on a flown basis at 7.2 per cent quarter-on-quarter, outpaced the market growth of six per cent, allowing us to consolidate our market share at +30 per cent levels in the domestic air market. As to our international air ticketing business, we have not only fully recovered but have started to grow above the pre-pandemic peak.

On the supply side, we continue to expand our supply and now offer over 78,000 domestic properties on our platform. Coming to international outbound business, we announced new direct flights to various destinations like Tashkent, Baku, and Bali during the December quarter.

Outbound travel from India has recovered to pre-pandemic levels and the growth momentum is expected to pick up pace in the coming quarters and years. India is expected to be the fifth largest outbound market by 2027. This should lead to India outbound being the fastest- growing component of overall Indian travel spends.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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