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Challenges of TourismTaxation in India

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TaxationTravel 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.

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TAX REFORMS : END DISCRIMINATION

The biggest impediment has been the tax structure on tourism, 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 tour operators themselves are haunted by the spectre of service

tax, a levy that will kill the trade.

Besides, the tour operators who earn foreign exchange like any

exporters suffer from gross discrimination.

While exporters are allowed 100 per cent deduction on their turnover

under 80 hhc of the income tax act, the tourism sector with far less

outgo of earnings has to be treated at par with exporters.

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Tourism industry Must be allowed all the benefits available to

exporters & software engineers.

The same envisage certain benefits such as 10 years tax holiday, duty

free import, import of restricted items etc.

IATO urges that income tax should be amended in line with revised

exim policy to enable service providers to avail the tax benefit Incomefrom foreign travel groups received as short term advance again attract

a discriminatory provision.

This money deposited in banks is treated as a fixed deposit while it is

purely a business income. This is a discriminatory disincentive.

The differing rates of road taxes and collection systems hurt free inter-

state movement.

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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. And the funniest

part is, its levied on the official tariff of the room where you had put up.

Consider that you are on a holiday, say at Ooty and the Hotelwallahshappily gave you a discount of 20 % on the rack rate. The rack rate is the

one that is mentioned on the reception. Supposing accommodation you

chose was for Rs 1500 and the reception lady smilingly gave you the

room for 1200, a 20% discount as it was off-season. You felt on top but

just to find that on the bill a 14% luxury tax has been levied and that tooupon the rack rate which in this example was Rs 1500.

The highly varying rates of luxury tax, 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.

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Luxury Tax not only irks the ordinary travelers but is adding to the

woes of hoteliers and the travel agents. Hit by recession and terror the

hospitality industry is facing a lull, luxury tax is not making it any easier.

India is expected to lose out to neighbouring tourist destinations like

Malaysia, Indonesia and Singapore, thanks to the increased burden of

tax on the Indian hotel industry.

In the Union Budget 2011-12, the government has announced a 10%

service tax on hotel accommodation in excess of Rs 1,000 per day and

on service provided by air-conditioned restaurants that have licence to

serve liquor.

IATO, since its inception, had been asking for uninterrupted

movement of coaches through different states and single point

collection and rationalisation of taxation policy.

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It is sad to state that repeated requests year after year have been

overlooked.

Hassle-free Interstate movement is essential for the growth ofdomestic and international tourism.

Air transportation has a symbiotic linkage with tourism. And for that

reason, it would have been better if both were placed under one

Ministry. It will also be in the greater interest of tourism, that there

should be stable air schedules for services for linking tourist

destinations.

This will be possible if only there is greater competition among theairlines sector. 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. As a result, tourist destinations like

Khajuraho, Lakshadweep, Port Blair and Leh have been affected.

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IATO regrets that not withstanding the commitment as early as last

September, the Railways have not yet recognised tour operators'

services so much so that many foreign tourists are inconvenienced to

procure train booking.

Seat capacity is also inadequate on tourist circuits. Visa fees should be

frozen for some countries during Visit India Year.

Another long standing demand of the IATO is to extend "Shatabdi"

train from Jaipur to Agra and vice versa has not been met.

IATO suggests more interaction between tour operators and the

railways to promote tourism.

Tour operators should be treated as a separate category.

Railway policy should pay special attention to the protection of

visitors.

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Challenges posed

on Tourism

department by thelatest Union

Budget passed

in 2011 :-

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1.The Finance Minister has imposed a service tax of Rs. 50 on domestic

air travel & Rs. 250 on international air travel. This would deter the

common man from taking to air travel.

2.The Finance Minister also imposed 10% tax on hotel accommodation

in excess of Rs. 1,000 per day. However he also mentioned abatement of

50% which means tourists will have to pay 5% more tariff, which is again

a deterrence.

3.He also imposed 10 per cent service tax on AC restaurants serving

liquors. However he did give away abatement of 70 per cent which is

going to add 3 per cent in your bill.

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The core problem

One problem that is often cited by the stakeholders in the Indiantourism industry is the high incidence of taxation.

Thus the country is plagued by a multitude of central and state leveltaxes 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-friendlyalternative destinations gaining in the process.

A comparison with nations that compete with India in the tourismsector substantiates this point ( see graph below ).

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The core problem

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Problem Solver

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Immediate action points in tourism

taxation

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Enhancing Indias Competitiveness As

A Tourist Destination Domestic air travel is very expensive compared to neighboring

countries. Central excise duty and high rate of state sales tax -average 25 per cent - on aviation turbine fuel (ATF) constitute

30 percent of operating cost of domestic flights in India.

There is need for notifying ATF as a declared good attractingonly a uniform central sales tax of 4 per cent to reduce thecost of domestic air travel.

Hotel tariff in India is also very high because municipal bodiesauction land for building hotels, which makes it difficult forhoteliers to construct budget hotels.

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Taxes, such as luxury tax at the state level, also increase the cost of

hotel accommodation. High taxation, differential rates of taxes invarious states on tourist vehicles, entry tax, and parking charges at

each state/destination push up the cost of tourist transport .

another key segment of the sector . and also subject the tourists toavoidable harassment because the vehicle needs to stop at each state

border to pay the taxes.

Tourist Trade Associations estimate that all these factors make Indiamore expensive by 25 per cent to 30 per cent as compared with other

tourist destinations in the region.

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Travel agents take up air fare tax issue

with Finance Minister

Travel Agents Association of India (TAAI) seems to beaggressively pursuing the issue of double taxation being leviedby the Government on air ticketing.

According to TAAI, apart from 12.36 per cent service tax onthe air fare, there is an additional tax of around 1.23 per centon the travel agents commission.

This double taxation leads to a total of around 13.5 per centservice tax being charged on the same air fare.

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'Levy service tax on airlines, 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, 1994.

Major travel agents across the country are also upset. Budget

conscious travelers prefer booking an air ticket directly on airlines

website to avoid paying this service tax. Many hotels are also taking

advantage of this tax and luring consumers to book a hotel room

directly.

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Travel agents are already losing out because of rupee appreciation and

to top it they have multiple taxes.

The top tour operators such as, Thomas Cook, Cox & Kings, Kuoni

Group, Raj Travels comprise 20% of the industry. While there are a large

number of small travel agents across the country. Other associations are

also supporting TAAI. There are only about 80-85 odd airlines in the

country and about 2,600 IATA agents, over 35,000 non-IATA agents who

all pay service tax and file returns. Service tax should be levied and

collected at the airline or the hotel level.

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Thank You

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