Home >News >India >Travel sector seeks tax cuts, incentives

The travel and tourism industry, which is reeling under the impact of the covid-19 pandemic without any stimulus package, has urged the government to provide concessions and incentives ahead of the Union Budget on 1 February.

The Indian Association of Tour Operators (IATO), which represents more than 1,600 operators for inbound tourists, has asked the government to exempt the tourism sector from the integrated goods and services tax (IGST)—similar to IT industry, which also provides services to international clients and brings foreign exchange but does not have to pay this tax.

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The travel and tourism sector has accrued losses of 90,000 crore, according to industry estimates. The sector accounts for 9.2% of the country’s GDP and employs 8.1% of the population, with the total contribution to forex at approximately $28 billion.

IATO has also urged government to do away with the multiple tax system. Tour operators have to pay multiple taxes at rates between 18% and 23% on various services. On the total billing, GST at 5%, without input tax credit, is also levied. This compares unfavourably with neighbouring countries where GST rates of 6-8% are charged from tour operators. Against this backdrop, IATO has asked the government to either lower the GST rate or allow input tax credit and end the cascading impact of multiple taxes.

The apex body argued that a section of tourists takes composite tours of India, Bhutan, Nepal and Sri Lanka and if the booking is made in India for such a tour, IGST is levied plus new tax collected at source (TCS) at 5%. To avoid extra cost, tourists tend to make bookings in other countries, which leads to Indian operators losing business. For composite tours, IGST and TCS should be removed, it said.

IATO also made a suggestion with regard to Service Exports from India Scheme (SEIS) under which the government provides incentives in the range of 5% to 7% of the net foreign exchange earned, to all service providers who are providing services to organizations outside India. It requested that the benefit for 2019-20 should be notified to service providers at the earliest and the incentive should be increased to 10% in the foreign trade policy for 2021-25 to offset covid impact.

“Tourism is a heavily taxed sector, which makes India an unattractive destination in comparison to our neighbouring nations such as Sri Lanka, Singapore, Malaysia, and Thailand. We have to rationalize the taxes to compete," IATO president Pronab Sarkar said.

Travel firm Thomas Cook said that it seeks government support for soft loans to finance working capital, incentivizing tourism spends by providing income tax concessions, payment of overdue SEIS benefits, easing of indirect taxes and waiving TCS to help aid recovery in 2021.

“With the extended ban on international commercial flights, domestic tourism offers strong potential and this requires priority support," said Madhavan Menon, chairman and managing director, Thomas Cook (India) Ltd.

Online travel agent MakeMyTrip said that in the short-term the industry is looking for assistance in the form of rationalization of taxes, extension of moratorium period, and waiving off certain statutory obligations.

"Income tax deductions on domestic travel undertaken by the taxpayer will help in encouraging people to travel more domestically. On the corporate travel front, the government should set sight on incentivising meetings, incentives, conferences and exhibitions (MICE) business and offer 200% weighted deduction to companies on MICE expenses over the next two years or more," said Deep Kalra, founder & group executive Chairman, MakeMyTrip Limited.

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