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With the government doubling the service tax on tour operators from 4.5 per cent to 9 per cent, outbound packages will now get more expensive. Leading travel companies claim the service tax component of packages that cost ₹2 lakh, will now increase from ₹9,000 to ₹18,000.
Considering overseas holidays are expected to get more expensive, travel companies are seeking tax breaks from the forthcoming Budget, to become more competitive and make the industry attractive for inbound travel.
Sriram Rajmohan, CEO and Managing Director, , Club 7 Holidays, said: “The service tax has gone up from 1.5 per cent to 9 per cent on pure hotel packages and from 4.5 per cent to 9 per cent for tour packages. This is a preparatory measure for the industry to embrace the GST, which is going to be at a higher percentage.
“This increase is going to affect individual travellers at the retail level rather than the corporate MICE (Meetings Incentive Conferences and Events) travellers as corporates can claim input credit on the taxes paid.”
The service tax raise would put curbs on the outflow of foreign exchange with outbound travel. The government should now give incentives for inbound travel to garner foreign exchange, said travel companies.
“Currently, the Indian customer pays double the tax on outbound overseas holidays. As travel and tourism is one of the highest foreign exchange earners for the country, the travel industry is expecting an exemption of service tax on foreign exchange earned by tour operators for inbound tours,” said Anil Khandelwal, Chief Financial Officer, Cox & Kings.
Khandelwal added: “We expect the Budget to allow for extension of Cenvat credit benefit to tour operators paying service tax on abated value, till such time the GST is implemented. Besides, the GST rate should be fixed after taking into consideration the GST/VAT being levied by neighbouring countries.”
Online travel companies also expect tax concessions from the Budget. Kapil Goswamy, CEO and Managing Director, BigBeaks.com, said: “The travel industry is still a highly taxed sector, and this makes it less competitive compared to other countries. Doubling of the service tax has made things worse. Travel portals look forward to some tax incentives such as exemption from minimum alternative tax in the upcoming Budget, since the demonetisation has led to a slow-down for start-ups in the travel trade.”
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