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Tourism industry looks at Union Budget 2010-11 to fulfill its long pending demands
February 16, 2010


Tourism industry looks at Union Budget 2010-11 to fulfill its long pending demands

Travel and tourism industry is one sector which generally gets a passing reference during Budget speeches of Finance Ministers. Stakeholders are a disappointed lot after every budget. While issues and demands of the industry remain almost the same, this year, for the first time ever all industry associations got together to chalk out a pre-budget memorandum. TravelBiz Monitor presents the expectations from Union Budget 2010-11

http://www.travelbizmonitor.com/tourism-industry-looks-at-union-budget-201011-to-fulfill-its-long-pending-demands-9570

16 February 2010


It’s again that time of the year when all eyes turn towards North Block in New Delhi, the Finance Ministry headquarters, with speculations as the Finance Minister gets into the exercise of finalising the annual budget for the nation.  Tourism industry, like any other industry of the economy, is also pinning a lot of hope this time around on the Union Budget.  There were mixed reactions from the travel and tourism industry last year after Finance Minister, Pranab Mukherjee announced the Union Budget 2009-10.  The capital outlay for Ministry of Civil Aviation (MoCA) was Rs 887 crore for financial year 2009-10, an increase of Rs 31 crore over the previous year (Rs 856 crore), while the Ministry of Tourism (MoT) received a capital outlay of Rs 1070 crore for the financial year 2009-10, an increase of Rs 23 crore over the previous year (Rs 1050.53 crore).

This year, with MoT proactively taking across concerns of the industry to the Finance Ministry, the industry is hoping that the forthcoming annual budget will address many of the long-pending issues of the industry this time around.

While there’s no official version forthcoming from the Transport Bhavan with regards to the recommendations to the Finance Ministry, there are unconfirmed reports that MoT has proposed infrastructure status for the hotel industry in the country to attract more investments into the sector in tune with the growing demand for quality hotel rooms in the country. Similarly, realising the growing importance of Cruise Tourism, MoT is said to have proposed extension of 70 per cent abatement of Service Tax to cruise operators, which has been earlier allowed to tour operators. Apart from proposing the revival of incentives under 80HHD of Income Tax Act to the Tourism sector, MoT also recommended Service Tax exemption for the tourism industry by treating the industry at par with the export industry.

Moreover, travel and tourism industry associations on their part had apprised the Finance Minister about the issues and asked for remedial measures through the Budget.  A rough reading of these demands reveal that these demands were part and parcel of every pre-budget memorandum of these associations for many years.

What Tour Operators want?
  • Exemption of Service Tax on Inbound Tour operators
  • Increase the Service Tax abatement for domestic and adventure tour operators to the tune of 90 per cent. Facility of CENVAT Credit to avoid multiple taxation.
  • Revival of Section 80HHD of IT Act.
  • Export status to the entire tourism industry
  • Include ATF in ‘Declared Goods’ list for uniform taxation
  • Abolition of Fuel Surcharge to make air travel affordable within the country
  • Rationalisation of State Transport Taxes

What the hotel industry is expecting:

  • Inclusion of Hotels as Infrastructure Projects under Section 80 IA
Benefit: New projects will be able to avail the benefits of 100 per cent deductions with respect to profits and gains.
  • Extension of Tax Holiday under Section 80 ID of IT Act allowed to new hotels and convention centres in the NCR and UNESCO world heritage sites of the country.
Benefit: This will attract more investors into the sector and help in improving room inventory in the country.
  • Depreciation on Hotel Building under Section 32 to previous level of 20 per cent
Benefit:  Will ease pressure on the expenditure incurred on renovations, up gradation.
  • Exemption of Excise Duty on F&B
Benefit: Hotels and Restaurant industry looks for exemption from Excise Duty on food items such as breads, biscuits, chocolates, pastries, ice-creams, fruit juices, etc. considering the activity as a small scale industrial activity, as the items are produced in the premises.
  • Exemption from Para 63 of Service Tax Act, 1994
Benefit: Consider hotels as a foreign exchange earner for the country and extend benefits given to the exporters.

What the tourism industry expects from the Budget?

Major demands of the travel and tourism industry are linked to uneven taxes and levies. Although, each vertical of the industry has their own specific demands, few of the common demands are:

  • Infrastructure status to the industry, especially hotels, under Section 80 IA of Income Tax Act.
  • Full Export Status to the Tourism industry and abolition of Service Tax.
  • Revival of Section 80HHD of IT Act.
  • Uniform taxation – Luxury, transport, ATF – across India.

Gains in the past:

While the demands remained same since many years, treatment the industry got through successive budgets was also almost the same.  Apart from passing references, tourism was not given much prominence by successive Finance Ministers.  For a change, in 2007-08 Budget, the Finance Minister had announced five-year tax holiday for hotels in the two, three and four- star categories, as well as convention centres with minimum capacity of 3,000 pax which is operational from April 1, 2007 till March 31, 2010 in the National Capital Region of Delhi.  None of the tax incentives sought by the industry found redressal in the budget.  In the following budget, i.e., 2008-09, apart from extending the five- year tax holiday facility to new hotels coming up at UNESCO listed World Heritage sites in the country, none of the other demands of the industry were considered.  The picture was not different in both the Interim budget and Union Budget of 2009-10.  The only respite in the last budget was the abolition of Fringe Benefit Tax (FBT) announced for the corporate world.

Indirect benefits:

Tourism after all is not an isolated sector.  The growth of tourism is intrinsically connected to developments in other sectors of the economy. For instance, good infrastructure in terms of roads, railway and airports is an important element for a tourist destination.  The government, through the last few years, has taken commendable steps to increase the plan outlay for development of infrastructure, including National Highways, airports, rail networks in the country. In the last annual budget there was an increase in the outlay for development of National Highways by about 23 per cent compared to the previous budget.  Similarly, there has been visible improvement in aviation infrastructure in the country after introducing the ‘Open Sky’ Policy and opening up of the sector for private sector players.  New airports with world-class infrastructure are in the pipeline in metro cities and other major cities of the country.

Expectations

Ajay Prakash, Secretary General, TAFI
With the Union Budget around the corner, there are lots of issues which if addressed through the Budget will benefit the tourism industry of India. Issues like tax on ATF being rationalised across India, export, infrastructure and industry status to the tourism industry will certainly benefit development of the industry and rationalisation of indirect taxes.

Rajji Rai, President, TAAI
There are lots of issues that the industry faces which needs immediate attention. With the upcoming Union Budget, issues like rationalisation of taxes; industry, export and infrastructure status to be granted to the industry; revival of 80 HHD of Income Tax act under which tour operators and travel agents be allowed to transfer part of their profit to Tourism Development Reserves for investment in tourism related projects like hotels, resorts, convention centres, restaurants and guest house and import of vehicles and adventure, sports and camping equipments such as tents, rafts, etc. Other issues like rationalisation of tax on ATF across India and inter state transport should also be addressed.

Peter Kerkar, Executive Director, Cox and Kings (India), Ltd.
The forthcoming Budget presents an opportunity for the Finance Minister, Pranab Mukherjee to provide some relief to the travel industry. As it is the largest employer the industry would like the government to look at it favourably. The government should first accord infrastructure status to the travel industry. This will provide the necessary impetus to invest in key tourism projects and enable us to create world class products that will appeal to tourists. Taxation is another issue that should be looked at and I believe that early implementation of the General Sales Tax (GST), will pave way to a friendlier tax regime benefiting all stakeholders. The government should also propose a Public Private Partnership model that will encourage serious players to enter the tourism industry. In terms of infrastructure, development of the same will have a huge bearing on the tourism industry as mobility and access will become easier. One important area that the government needs to look at is decreasing Service Tax as it is quite high at the moment.

Subhash Verma, Vice President, ADTOI
The government has not given priority to the travel and tourism industry though it generates employment for large number of people and has the involvement of Prime Minister’s and President’s, as well as other top dignitaries of various states. This year we are expecting that the industry will get its due in the Union Budget. I am expecting the government to put the tourism industry under the Goods Service Tax (GST) which is supposed to be introduced later this year. Under GST, the industry will benefit greatly, especially in sphere of taxes as they will be simplified. In India, we have multiplicity of taxes. Besides this, GoI should also grant industry status for the tourism sector rather than putting it as a service industry. Furthermore, hotels and convention centres should be given infrastructure status.

Vijay Thakur, President, IATO
In the budget 2007-2008, tourism sector was allotted Rs 1000 crore for promotion of tourism. For the Ministry of Tourism to continue their efforts to promote tourism through Incredible India Campaign and further through aggressive marketing measures, we strongly recommend that tourism be brought in the ‘Priority List’ and tourism sector be allotted at least Rs. 2000 crore in the outlay plan Union Budget 2010-11. At the same time, part of the allotted budget be spent on development of infrastructure, aggressive marketing to promote India through Public Private Partnership. The Section 194-I of Income Tax Act should not be applicable on hotel rooms being booked by tour operators and travel agents, as these rooms are booked only for short stay by tourists/clients.

Madhavan Menon, Managing Director, Thomas Cook India
I have low expectations from the budget this year, as the government has already offered lot of stimulus packages during the recessionary period. With the recession phasing out things are getting better. Through this budget, I do expect rationalisation of indirect taxes and some sort of legislation for the development of tourism infrastructure like hotels, projects etc. to be easier.

Tejbir Singh Anand, President, ATOAI
The need of the hour is to have a holistic approach towards the exemption of import duty levied on adventure sports equipment and accessories. Currently, there is no customs duty levied on rafts and skis, but this does not complete the requirement of equipment needed for Adventure Tourism. Currently there is about 42 per cent tax that is applicable on other equipment like helmets, peddles etc which needs to be exempted in order to boost Adventure Tourism.

Pratik Mazumder, Head of Marketing, Yatra.com
With the rising amount of Service Tax levied on foreign trips, there is a huge impact on Indian outbound tourism sector. Service Tax of about ten per cent on foreign holidays is a big amount for Indian travellers which definitely affect the volume. We are expecting that this year, instead of appraising the tax, it should be lowered to boost the outbound traffic. Tourism industry has recorded a slowdown and loss in business since the global meltdown and is looking forward for some tax benefits from the government to get back on track. The budget should include improvement in Rail and Road Tourism along with connectivity with the North Eastern region of India which has a huge tourism potential. Apart from famous destinations like Kerala, Rajasthan and the Golden Triangle Circuit, government should start marketing and promoting other potential tourist circuits of our country on domestic and international level.

Rajindera Kumar, President, Federation of Hotel & Restaurant Associations of India
Every year we look up to the Finance Minister with the hope that hotels will be put on the agenda but unfortunately hotels fail to make an appearance. Finance Minister should consider this industry which has stood through tough times (like recession, terror attacks) without retrenching anyone. The industry that provides foreign exchange, employment should be considered for at least the minimal reasonable benefits.

Jagdeep S Rikhy, Managing Director, Inter Skylinks (India) Private Limited
We are looking for rationalisation of various tax regimes and some impetus to tourism, in terms of creating better tourism infrastructure. We expect reduction in Luxury Tax, Aviation Turbine Fuel (ATF), besides uniform Transport Tax system and single window clearance system to pay taxes, increase of FDI per cent for aviation industry, more airports and better connectivity.

Deep Kalra, Founder and CEO, Makemytrip.com
The Indian travel industry is coming back on tracks after last year’s slowdown due to various reasons. We expect that this year’s Budget should be a growth oriented budget driven out of increase in demand in various segments of tourism industry. There should be no abrupt exit of stimulus and a smart phase out plan is the need of the hour as growth momentum continues. A significant amount should be allocated on infrastructural projects, especially civic infrastructure at major tourist destinations which needs to be improved.

The most important thing is the education system which acts as the base of tourism sector. There is going to be a serious shortage of quality talent pool in the industry. Education system in tourism needs serious attention if we need to continue our growth in service industry and expects export revenue from that. Apart from that, there’s a need to exempt service tax from foreign exchange earnings

Vijay Mohan Raj, Director, Uniglobe Sameera Travels & Tours P. Ltd.
I think the government has to do more for the aviation and tourism industry. It is the only sector which has the highest rate of employment compared to any other industry. Even visting Indian destinations is becoming costlier as compared to international destinations like Singapore etc. Therefore, I believe that if the government offers the right kind of stimulus in form of financial packages for the industry (eg: rationalisation of Service Tax and Sales Tax) major tourism stakeholders can do well and make the industry a more profit making sector.

Chender Baljee, Chairman and Managing Director, Royal Orchid Hotels
Every year we have expectations but not much has been done about the hotel segment. There is no clarity on the industry status for hotels and it has been classified under the real estate segment. However, infrastructure status if granted will help the hotelier in terms of getting sanctions (like loan etc). Service Tax (12 per cent) and VAT (12.5 per cent) both are levied on banquet services which results in double taxation and results in government losing on revenue. Hence this has to be rationalised.

Praveen Chugh, Managing Director, Travel Services International
I am hoping that this year will be an exception as far as the travel and tourism industry is concerned. There should be abolition of multiple taxes along with higher allocation of funds for the tourism industry. There should be allocation for all round improvement of infrastructure in view of the forthcoming Commonwealth Games in October this year. There should also be development of areas around tourist spots, as well as introduction of Visa-on-Arrival for potential tourism source markets. Stringent security arrangement should be made for the safety of tourists.

Anil Kalsi, Managing Partner, Ambe World Travels
We are expecting deduction of Service Tax on tickets, as it is now becoming more difficult for travel agents due to certain airlines in India following zero commission regimes. We are also expecting tax soaps for travel agents from Government of India.

Balbir Mayal, Managing Director, New Airways Travels
As you know, in the past also, the Government of India had not given any concession to the travel industry in the Union Budget. Every year, we demand certain concession for tax systems that had been applied in travel business but unfortunately no demand has been taken up from the Indian government. Thus, I don’t expect anything this year also. Although I expect reduction in fuel surcharge and uniform Transport Tax.

T K Gopakumar, Director, Magellan Travel Services
First up all, the Government of India should restore our commission from all 16 zero commission airlines besides reduction of Service Tax and give more preference to travel and tourism industry. We also expect some good public amenities at tourist destinations in India. Further, public transportation and airport employees should be more tourists friendly, especially when they communicate and serve tourists at immigration centres and other tourist centres. In addition to this, touts and pimps at tourist destinations should be controlled. We want the government to implement this for the travel and tourism industry to make the future better.

Tarakeshwar Singh, Director, Jet Setters Private Limited
In the upcoming Union Budget the Indian government should reduce hotel prices to about USD 150 on sgl/dbl basis inclusive of breakfast and taxes. Since hotels in Delhi were working on his tariff till September last year, a lower tariff would boost both inbound and domestic tourism in the country. Secondly, Service Tax should be levied on all tickets irrespective of the place from where the ticket had been issued. The online booking engines and airlines should pay Service Tax. Also a task force should be established with executive rights in every city to vigil the standards of hotels, transportation systems, places of interest.  Upgrading or down scaling of the same should be don entirely on the recommendation of a task force which should not be a government body. The Travel Association Heads or any executive member should also not be made a part of it. Furthermore, strict police monitoring should be ensured with regards to services offered by taxis, autos and shopkeepers which are frequently visited by tourists. All efforts should be taken to ensure that tourists are not harassed. Lastly, commission on airline tickets need to be abolished in totality - with most airlines in red it is a step the Regulatory Body needs to take immediately. Agents of course could levy a charge based on the quality of service rendered by them.

Deepak Narula, Managing Director, Aman Travels Limited
As far as our expectations are concerned, we feel that the travel trade needs urgent attention of the Honorable Finance Minister. Besides abolition of Service Tax, liberalisation to send remittance abroad which has become a cumbersome task also needs to be looked upon. Whether outbound tours are applicable under Service Tax or not also needs to be addressed. Indian tourism requires a new lifeline and needs to operate on the lines of foreign tourism boards as inbound tourism can be a major revenue earner for the country. It is time to push for better infrastructure wherein small and medium size hotels can be encouraged to be constructed. Finance should be available to small and medium travel agencies at much lower rate so that these agencies can move to bigger leagues.

SK Khullar, President, Hotel & Restaurant Association of Eastern India
We are not expecting too much from the Finance Minister this year. But we hope to get the industry status this year and along with the industry status we hope to get the incentives entitled to it.

Ankur Bhatia, Executive Director, The Bird Group
The Indian aviation industry went through a rough phase in 2009 with a total loss of Rs 8000 crore during 2008 - 09. The major issue for the industry is that it is currently tapping a meager ten – 15 per cent of over 300 million potential travellers in India because of the paucity of airport connectivity across the country. In order to increase this percentage and see growth, it is imperative that the focus is shifted towards developing regional airports. We hope that the government will look at this view point and shift its focus in developing regional airports. Additionally, the government should also look at standardising ATF taxes, given that the Goods and Service (GST) Tax will soon be implemented.

The hotel industry also saw a drop of over 50 per cent in occupancy levels during peak season in 2008 – 09. We are expecting that the government reviews the current situation and considers offering Tax breaks for hotels, especially for the projects that will be operational prior to the Commonwealth Games and not restrict it to only the ones which are in operation by March 31, 2010. As most of the projects are likely to be completed only later, majority of the industry will not benefit under the current rules.