Loads of Taxes in Tourism Sector is Ruining its Growth needs immediate action to keep it moving with Tax incentives
(March 2009) - Global Economic recession has badly affected Travel Industry. Since the economic meltdown as early as July 2008, business of tour operators witnessed 20 -25% downfall with cancellations and there is no new business coming in. The industry partners feel that unless the tourism sector is now given tax relief's it can't sustain the growth. Global economic meltdown, Terror attack, uncertainties in fuel prices, heavy Road taxes have made India an overpriced Destination. IATO, TAAI, Hotel Associations have submitted to the Ministry of Tourism various suggestions which when implemented by State Governments would contribute positively towards holding or lowering the prices of tourism products and help in further growth of this sector on a sustained basis. In all these areas State Governments need to focus suitable action. The suggestions include -
Vehicles used by tourists are subject to tax by the State Governments under their respective State laws and rules. Not only is the rate of Passenger Tax High, it varies from State to State, so does the mode of levy of this tax. This has led to a cascading effect for tourists visiting a circuit involving more than one destination. It invariably results in high priced tourist packages. The following examples would indicate the gravity of the situation: a) Taxes levied on 35 seater coaches on an itinerary of Delhi/Kasauli/Delhi is 59.3% of the hiring cost and on Delhi/Agra/Delhi is 43.22% of the hiring cost. Such heavy tax component is detrimental to attract tourist by Car/ Coaches.
The same is true of all regions in the country. In today's world, the pricing strategy should be rational with the objective of providing value for money as well as encouraging free and seamless flow of tourist traffic in inter-state circuits. The situation becomes very aggravated when more than two to three States are involved as in the case of Delhi, Jaipur and Agra circuits where four States Delhi, Haryana, Rajasthan and Uttar Pradesh are involved. Tourism Ministry has accordingly taken-up the matter with the State Empowerment Committee who has taken-up our suggestions and suggestions for where ever action needs to be taken by the States.
Ministry of Tourism who strongly supported the scheme circulated to State Governments by the Ministry of Shipping, Road Transport and Highway regarding allocation of a separate registration series, carrying alphabets "TV" (tourist vehicle) on all tourist vehicles may be implemented. This may only be applicable to vehicles owned by Transport Operators approved by the Ministry of Tourism, Government of India. A quarterly/annual tax of Rs 25,000/- may be paid by these vehicles. The State Government could consider introduction of Zonal Permits for levy of this tax. The Tourist Transport Operators may pay the tax in the Home State and carry the tourist Transport to all the State included in the Zonal permit without having to wait for clearance at each border crossing. The appointment of tax among the States may be decided on the basis of a uniform rational formulae say kilometerage to be covered in a State an the tax amount payable to each State could be deposited in their designated bank
accounts, thereby ensuring that there is no delay in receipt of their share of the tax. This procedure would help in evolving a Single Window permit system and boost tourism along with highway facilities which are now being develop covering whole India.
Rationalization of Luxury Tax on Hotels and VAT on Food and Beverages - The Luxury Tax on hotels in some States is very high and varies from 5% to 12.5%. In order to encourage tourism, it should be limited to a maximum of 4% on actual tariff charged. The VAT charges on Food and Beverages also varies from State to State, it should be reduced to maximum of 4% of the billed amount.
Aviation Turbine Fuel (ATF) - Heavy Sales tax on ATF by States has its own impact on the tourism industry. Travel on higher cost on air travel totally disrupted domestic movements. It varies from State to State. It should be rationalized to 4% for every state.
Similarly in the Central Sector Service tax needs to be reduced and in the present economic crises should be reduced and preferable if this can be withdrawn. IATO has also pleaded to the Ministry of Finance for at least the Inbound tour Operator be given full service tax relief on foreign exchange earnings as that will make India Holiday packages somewhat competitive with the neighboring countries. Tourism Ministry has recommended the IATO proposal to Ministry of Finance for positive consideration. Foreign Exchange flow is now progressively going down. The foreign exchange reserve has come down from USD 300 billion to USD 250 billion as per the press report.
Tourism can boost Foreign exchange earnings with its rippling effect value. It can boost & stable the present earnings figure if tax incentives are given.
Though somewhat incentives are now available because of 2% reduction in service tax announced recently but more needs to be done to revive the industry from downturn. Travel industry hopes that the next Budget after the election by the new Government will be exciting one with lots of incentives. In any case the tourism is over burdened with taxes and if the liberal view is not taken for tax relaxations the benefits of tourism will never be available to our country. Country needs employment, foreign exchange, for infrastructure, for a balance development of whole India and tourism is the only saviour in all these respect.
Tourism is need of hour and the tax reduction is the right escape.