The Indian government’s new service tax on tour operators has come as a jolt to the sector, already reeling under pressure post demonetisation.
Effective January 22, tour operators are required to pay service tax on 60 per cent of the total invoice value of a package tour, according to a government notice. Earlier, the tax was levied on 30 per cent of the invoice value.
This effectively doubles service tax on tour packages to nine per cent from the earlier 4.5 per cent.
Mahesh Iyer, COO, Thomas Cook (India), said: “The impact is two-fold: a resultant doubling of the tax rate on the sector, and given that implementation was within a week, reaction time as well as time for advocacy was negligible. This will see a corresponding increase in tour pricing, which will in turn be passed onto customers.”
The move will benefit foreign tour operators and OTAs unaffected by the increased tax, Nalin Kapadia, chairman, Incredible Vacations remarked. “It seems that the government is looking to make life difficult for small travel agents,” he said.
Others added that the move will mostly hit outbound packages as operators enjoy CENVAT (Central Value Added Tax) credit for all input services for inbound tours. This can help defray service tax on services like hotels, transportation and mobile bills.
“Though CENVAT credit is huge relief to inbound tour operators, many of us also (combine) neighbouring destinations like Sri Lanka and Nepal in our tour packages. With the cost going up we may lose that business to foreign tour operators,” said Amaresh Tiwari, managing director, A.T. Seasons & Vacations Travel.
