It is time to review the Travel Agents Ordinance (Cap 218), in place since 1993, as the Hong Kong government and the industry are split whether these levy rules should be reformed.
It is loosely known to travel agents (TAs) that a levy is charged on a “package comprising of two or three outbound services”. The Travel Industry Council (TIC) of Hong Kong provides only minimal guidance on this topic, even though the total levy received exceeds HK$25 million (US$3.2 million) in 2017.
Under the Ordinance, licensed TAs are mandated to pay levy from outbound fare received, i.e. the actual sum paid by consumers for outbound travel service. An outbound travel service has five necessary components: it must be offered to the public; comprising two or all three qualifying services selling as a package; this package must be available only at an inclusive price; and pre-determined before being made available to public.
When all five conditions are met, a levy has to be paid, regardless of how TAs invoice them. If one or more elements are not satisfied, then nothing will render TAs liable for levy on those services sold.
Herein lies matters that TAs should be highly concerned about. Unlike brochure packages from wholesalers which in most cases have to be levied, it is questionable whether services booked (usually separately) by corporate clients also have to be levied. One should ask if all five elements are met before paying a levy.
The two usual decisive elements are “pre-determination” and “inclusive price”. For the former, the judgment of ABTA vs CAA in the UK tells us it means the package content must be fixed before being made available to consumers, e.g. an air-plus-hotel package. Any add-on services purchased after the sale is thus post-determined.
Ad-hoc packages, such as study or incentive tours, assembled according to needs and requirements raised by consumers before being made available, also satisfy this “pre-determined“ requirement.
For the latter, “inclusive price” is a line drawn between “purchasing all services as a whole” versus “purchasing separate services at the same time”. A package price is usually an inclusive price, because it is cheaper than purchasing the individual services separately, and is cheaper only as a package.
What if the package price is simply the arithmetic total of all individual prices (such as for corporate clients or individual flyers mixing-and-matching)? There is no definite answer in law, but that total price, no matter how you name it, is less likely an inclusive price.
Squarely, the government now proposes to remove these two determinants. If so, a levy may be charged on most outbound services sold by TAs, who all along have difficulties (not a legal restriction) passing the levy on to consumers. The likelihood of facing sanctions for failing to pay levy also increases.
The industry must hence be alert to these implications when lobbying with the government.