Union Budget 2014: Policy change will revive the tourism sector, says Cox and ...

Direct reforms

Treating tourism industry at par with exporters based on its foreign exchange earnings. Tourism industry gets discriminated vis-à-vis exporters and tourism industry does not get any benefits that exporters of goods receive inspite of the fact that tourism industry earns foreign exchange and retention of foreign exchange is much higher than any other export oriented industry.

Like exporters, based on foreign exchange earnings, tour operators should also get exemption of service tax on package tours as the payment is received in foreign exchange. With the service tax added at present, India packages loose on account of price competitiveness and cannot match the prices on holiday packages, which are on offer by our competitive countries like China, Thailand, Malaysia, Sri Lanka, Singapore Hong Kong etc.

In the service sector, it is a common business practice that services are sub-contracted to the same category of service provider i.e. a tour operator sub-contracts to other tour operator. Eventually on the same transaction, tax is being paid by two tour operators without being allowed the CENVAT Credit. Sometimes, such transaction is sub-divided between many tour operators. Thus, ultimately on many points, service tax is being charged without giving the benefit of CENVAT Credit, which leads to the multiplicity of the taxes on the same transaction having a serious cascading effect and in some cases the incidence of tax is more than 12.36%.

This happens frequently in respect of inbound tours and such multiplicity of service tax leads to higher cost, which has adverse impact on the foreign tourists, as India tends to get expensive and they prefer visiting neighbouring countries. Thus India loses, on one hand, the foreign exchange and on other hand, it has adverse impact on the creation of employment opportunities. It is suggested that when the same service provider sub-contracts its activity to the similar service provider, service tax charged by the sub-contractor should be allowed as CENVAT Credit to the main service provider to avoid multiplicity of the service tax on the same transaction. Or provide exemption from charging service tax within the same category of service providers.

With effect from July 2012, service tax has been levied for the services provided to Indian tourists visiting neighboring countries like Nepal, Bhutan, Sri Lanka, Bangladesh, Maldives etc., which was not there prior to July 2012. This needs to be withdrawn as services are provided outside India.

Indirect reforms

Allow private airport operators to issue tax-free infrastructure bonds to the public. Investments in these bonds should be allowed for deduction under section 80CCF of the Income Tax Act. This will result in opening up newer airports thereby offering better connectivity to tourists. Upgradation of existing airports should be eligible for Section 80IA benefits.

Allocate seed funding for the Essential Air Services Fund (EASF). EASF to provide Viability Gap Funding for no-frills-airports (NFA) and air connectivity in Tier 3-4 locations based on a thorough feasibility analysis. Provide seed funding to establish 20-25 heliports at important tourist locations. Balance to come from state governments and private operators.

Lending for Hotel Projects should be under the “Infrastructure Lending list” due to which Hotels will be able to access lower interest rate loans and longer tenor loans. This will lead to a revival of the Hotel Industry, thereby increasing capacities for Tourists.

Anil Khandelwal
CFO – Cox and Kings

Modified Date: July 01, 2014 7:04 PM

Union Budget 2014: Policy change will revive the tourism sector, says Cox and ...