Challenges of Tourism Taxation in India

Taxation 
Travel and tourism in India is a high-taxed industry, which makes India expensive as a tourist destination. This is affecting the growth of the industry in India and India is losing out to other low-cost destinations. Inbound tourism is the one most affected. Various taxes are levied across the entire industry right from tour operators, transporters, airline industry to hotels and these include service tax, luxury tax, tax on transportation, tax on aviation turbine fuel (airline industry), and various taxes on transportation. In addition, these tax rates tend to vary across different states in the country.

. While exporters are allowed 100 per cent deduction on their turnover under 80 hhc of the income tax act. Besides. The tour operators themselves are haunted by the spectre of service tax. the tour operators who earn foreign exchange like any exporters suffer from gross discrimination.TAX REFORMS : END DISCRIMINATION The biggest impediment has been the tax structure on tourism. the tourism sector with far less outgo of earnings has to be treated at par with exporters. a levy that will kill the trade. both at the central and state level so much so we have the dubious distinction having the heaviest taxation on tourists at-least in two cities in Mumbai and Delhi.

The differing rates of road taxes and collection systems hurt free interstate movement. IATO urges that income tax should be amended in line with revised exim policy to enable service providers to avail the tax benefit Income from foreign travel groups received as short term advance again attract a discriminatory provision. This is a discriminatory disincentive. . import of restricted items etc.Tourism industry Must be allowed all the benefits available to exporters & software engineers. This money deposited in banks is treated as a fixed deposit while it is purely a business income. duty free import. The same envisage certain benefits such as 10 years tax holiday.

Supposing accommodation you chose was for Rs 1500 and the reception lady smilingly gave you the room for 1200. You felt on top but just to find that on the bill a 14% luxury tax has been levied and that too upon the rack rate which in this example was Rs 1500. say at Ooty and the Hotelwallahs happily gave you a discount of 20 % on the rack rate.THE LUXURY TAX  Luxury Tax is a tax that is levied by most of the state governments (not all) to fill their coffers at the expense of tourists. it s levied on the official tariff of the room where you had put up.  The highly varying rates of luxury tax.  Consider that you are on a holiday. The rack rate is the one that is mentioned on the reception. a 20% discount as it was off-season. And the funniest part is. . which ranges from 5 per cent in Uttar Pradesh to 20 per cent in Tamil Nadu are an anomaly that needs to be replaced by a rationalized tax structure.

.000 per day and on service provided by air-conditioned restaurants that have licence to serve liquor. In the Union Budget 2011-12.  IATO. thanks to the increased burden of tax on the Indian hotel industry. since its inception. Luxury Tax not only irks the ordinary travelers but is adding to the woes of hoteliers and the travel agents. Indonesia and Singapore. luxury tax is not making it any easier. Hit by recession and terror the hospitality industry is facing a lull. the government has announced a 10% service tax on hotel accommodation in excess of Rs 1. had been asking for uninterrupted movement of coaches through different states and single point collection and rationalisation of taxation policy. India is expected to lose out to neighbouring tourist destinations like Malaysia.

Lakshadweep. And for that reason. that there should be stable air schedules for services for linking tourist destinations. Air transportation has a symbiotic linkage with tourism. Unfortunately the high taxation on the Air Transport industry has made them focus on the productive routes and thus the competition has taken a back seat. Hassle-free Interstate movement is essential for the growth of domestic and international tourism. .  This will be possible if only there is greater competition among the airlines sector. it would have been better if both were placed under one Ministry. tourist destinations like Khajuraho. It is sad to state that repeated requests year after year have been overlooked. It will also be in the greater interest of tourism. Port Blair and Leh have been affected. As a result.

IATO suggests more interaction between tour operators and the railways to promote tourism. Seat capacity is also inadequate on tourist circuits. Railway policy should pay special attention to the protection of visitors. . Tour operators should be treated as a separate category. Visa fees should be frozen for some countries during Visit India Year.IATO regrets that not withstanding the commitment as early as last September. Another long standing demand of the IATO is to extend "Shatabdi" train from Jaipur to Agra and vice versa has not been met. the Railways have not yet recognised tour operators' services so much so that many foreign tourists are inconvenienced to procure train booking.

Challenges posed on Tourism department by the latest Union Budget passed in 2011 :- .

However he also mentioned abatement of 50% which means tourists will have to pay 5% more tariff. 1. 250 on international air travel.The Finance Minister also imposed 10% tax on hotel accommodation in excess of Rs. 3.He also imposed 10 per cent service tax on AC restaurants serving liquors. 50 on domestic air travel & Rs.000 per day. which is again a deterrence. 2. However he did give away abatement of 70 per cent which is going to add 3 per cent in your bill.The Finance Minister has imposed a service tax of Rs. This would deter the common man from taking to air travel.1. .

. ‡ A comparison with nations that compete with India in the tourism sector substantiates this point ( see graph below ).The core problem ‡ One problem that is often cited by the stakeholders in the Indian tourism industry is the high incidence of taxation. ‡ Thus the country is plagued by a multitude of central and state level taxes on tourism offerings. which often have a cascading effect on the final price that is paid by the tourist. ‡ The result: Lower demand for tourism products with tax-friendly alternative destinations gaining in the process.

The core problem .

Problem Solver .

Immediate action points in tourism taxation .

Central excise duty and high rate of state sales tax average 25 per cent . ‡ Hotel tariff in India is also very high because municipal bodies auction land for building hotels. ‡ There is need for notifying ATF as a declared good attracting only a uniform central sales tax of 4 per cent to reduce the cost of domestic air travel.Enhancing India s Competitiveness As A Tourist Destination ‡ Domestic air travel is very expensive compared to neighboring countries.on aviation turbine fuel (ATF) constitute 30 percent of operating cost of domestic flights in India. which makes it difficult for hoteliers to construct budget hotels. .

differential rates of taxes in various states on tourist vehicles. and parking charges at each state/destination push up the cost of tourist transport . ‡ another key segment of the sector . such as luxury tax at the state level. . High taxation. and also subject the tourists to avoidable harassment because the vehicle needs to stop at each state border to pay the taxes. ‡ Tourist Trade Associations estimate that all these factors make India more expensive by 25 per cent to 30 per cent as compared with other tourist destinations in the region.‡ Taxes. also increase the cost of hotel accommodation. entry tax.

there is an additional tax of around 1.5 per cent service tax being charged on the same air fare. ‡ According to TAAI.36 per cent service tax on the air fare. apart from 12.23 per cent on the travel agents commission.Travel agents take up air fare tax issue with Finance Minister ‡ Travel Agents Association of India (TAAI) seems to be aggressively pursuing the issue of double taxation being levied by the Government on air ticketing. . ‡ This double taxation leads to a total of around 13.

Many hotels are also taking advantage of this tax and luring consumers to book a hotel room directly. 1994. not travelers' ‡ TAAI is demanding an amendment to make the tax levied on an airline in place of the to a customer in Section 65 of the Finance Act. . Budget conscious travelers prefer booking an air ticket directly on airline s website to avoid paying this service tax.'Levy service tax on airlines. ‡ Major travel agents across the country are also upset.

. Kuoni Group. Thomas Cook. While there are a large number of small travel agents across the country. Service tax should be levied and collected at the airline or the hotel level. ‡The top tour operators such as. Other associations are also supporting TAAI.‡Travel agents are already losing out because of rupee appreciation and to top it they have multiple taxes. Cox & Kings. Raj Travels comprise 20% of the industry.600 IATA agents. There are only about 80-85 odd airlines in the country and about 2.000 non-IATA agents who all pay service tax and file returns. over 35.

Thank You .

Presented by :Vikash Vikram Katoch Vikramjit Singh Visharad Saxena Vivek Kumar Vinod Bhai Chaklasia Yatinder Pal .

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