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Wednesday, 05 July, 2017, 11 : 13 AM [IST]

Fear of the Unknown

The biggest tax reform in Indian history post independence - the Goods and Service Tax (GST) has finally been rolled out and is receiving mixed reactions from the travel industry. There is a lot of confusion prevailing over the operational process and teething problems that are meant to emerge initially. While some take this opportunity to laud the efforts of the government, others highlight the loopholes and its impact on the travel, tourism and hospitality sectors. Akansha Pandey finds out.

Aashish Gupta, Consulting CEO, FAITH

We are glad that the GST Council has revised the tax rates for hotels and the good thing is that the foreign tourists can get goods tax refund at the airport. There are also some operational issues that need to be looked into. This will make a huge positive impact on the tourism players. We will push for tax to be charged on hotels on room rates only. The option of working on full input tax credit or working on 5% tax rate needs to be decided for tour operators. We hope that the rate administration across India is uniformly done by all states and not interpreted as per the local convenience. The services exempted under GST like medical tourism or the ones provided from J&K, porters or unorganised labour will have rates accordingly. Airlines and hotels will now have full access to database of tour operators and in-turn trade must also be given the safety of their profit margins. If such issues are sorted at the earliest possible, smooth working will eventually bring in more business.

In the long-run and we look forward to work with the government on matters such as – the tax on hotel rooms which has to be further rationalised. For tour operators and rent a cab operators, the reintroduction of cenvat credit should be considered. For Indian businesses which are earning foreign exchange for the country, shouldn’t be taxed on goods. The tax rate on outbound tour operators should also come down to 0% as the ‘Body of the Travel’ is outside Indian borders.

Jose Dominic, CMD, CGH Earth

From the already prevalent rate of 19% operational in many states like Tamil Nadu and Delhi, the hotels in the luxury bracket will now pay 9% more which may practically demolish the tourism sector in the long-run. 28% is the highest tax on room globally. This eventually puts us in a huge competitive disadvantage when our neighbouring South East Asian countries have 7-12% tax on hotels. If tourism is the core focus of this government, then this additional tax burden will be an obstacle in the development of the sector. In-turn instead of composite rates, hospitality players may have room-only charges going forward.

This move will also hit the businesses in remote India hard where rates are composite. GST is the biggest tax reform post independence but shockingly it seems against the growth of the hospitality sector. The foreign travellers will rethink before travelling down to India and in-turn it will be a strong boost for Indians to travel outbound. I would suggest that a separate category and a lower tax rate should be applicable on the inbound businesses. Another big challenge is the lack of billing clarity among the trade.

Chitra Bhatia, MD, Aashman Air Travels
In the long term, GST will be fruitful for the business segment. Once there is clarity on the billing procedures of the tax regime, the uniform tax structure and ethical working will yield superior results. Presently, there is a lot of ambiguity and the trade is debating on the pros and cons. I believe that after we start following it, the government will realise the repercussions and they might listen and adjust the norms accordingly.

Homa Mistry, CEO, Trail Blazer Tours India
GST will completely change the travel industry and it will ultimately be a game-changer in the long run positively. It is not just a tax, it will be a revolution which will compel us to change the way we work. Our core area of operations will see no major effect as our corporate entities will be getting CENVAT credit. However, travel agents will have to be completely ready to follow the government guidelines and be above board. They will have to become a professional counsellor to be able to earn their margin of profit.

Jyoti Mayal, Managing Committee Member, TAAI
GST was something which the whole country and our travel fraternity was looking forward to, as we were reeling under multiplicity of taxes and lack of credits. The government should be given credit to get this herculean bill passed and implemented. Though it is the much-needed step for business and in-turn for the country, we feel threatened by the high incidences of 12% taxes imposed on business class air travel and the high tax on luxury hotels and AC restaurants. All this will make India uncompetitive for tourism both for the domestic and international market.

There is lot of ambiguity in the adoption and implementation of GST. It took us years to understand the right format of service tax and now we have to shift to GST. More than the tax structure on air tickets, we are skeptical on the implementation procedures. We are vary of our data being captured by others in the chain starting from the airlines. This could make us lose our clients and it puts our data security in question. There should be a clause built within the system to protect us, on privacy compliance.

Biji Eapen, President, IAAI
The reduction of tax to 5% will boost the economy class journey however increase of 9% to 12% will have adverse effect on all other classes. The hospitality sector rates are too complex, high and uncompetitive which is a disappointment. When upper class journey become expensive, airline may increase economy seats, which ultimately, may pave the way for higher price bargains.

In terms of billing, we may have to face some difficulties in the initial days of GST roll-out, but in long-run the new indirect tax regime would help cut tax evasion and check price rise.

Harmandeep Singh Anand, MD, Jagsons Travels
GST is the best way forward and the future is bright for the travel, tourism and hospitality industries. The government is doing its job and we support them towards a successful and seamless implementation of GST. This is an opportune time for the industry to take corrective actions where they would have gone wrong in the past. The launch of GST has ushered in a new era in the industry. The government has kept options open for guidance to clear confusions. There are also professional GST advisors to guide us on the subject and we can’t blame the government for our ignorance. All the industries will have to adopt electronic mode and GST is a step in that direction to make the future paperless.

A Krishna Mohan, Managing Director, Southern Travels
I believe that the impact of GST on the travel and hospitality sector will be game-changer with more stable tax regime and it will boost the Indian GDP. The rates on tour operating services have been aptly fixed under 5% with no input tax credit which was 9% under service tax. We are quite hopeful that with the decline in the GST rates not only our business will increase but the overall tourism industry will be benefited.

However, tourism industry has been deprived of input tax credit and cascading effect of taxes will still continue. The benefit of tax on value addition is lacking for our industry. It needs clarifications whether GST will be charged on import of services on reverse charge basis which may affect the outbound tourism.

Gajendra Singh Panwar, Director, Indo Asia Leisure Services
It will definitely be a game-changer in long run, because most of the small trader and service providers will get registered in GST and govt tax collection will be improved. I think it is a step for India from developing country to a developed country. Sadly, it will be a burden for the existing rates that have been quoted especially for long-term brochure business. The compliance and cost of operation will go up with the increase in tax rate from 15% to 18%. But eventually it will ease out the situation in the long run and India will be able to attract more tourists and enhance revenues to the government. We also feel that the standard rate of GST should have been lower initially and increased slowly in due course. The resultant downside of GST @ 28% and 18% would be killing and might result in black economy without bills.

Vishal Suri, Managing Director, SOTC Travel
The 5% GST rate on tour packages is a welcomed move for consumers. However, high-end hotels and business class air travel is going to be costlier under the GST. Countries that have adapted GST have grown in their GDP. The implementation of GST will now rationalise and simplify tax regime. In the long term, it is expected to enable the much-required growth needed for the travel industry.

Debasis Nandy, CFO & President - Commercial, Finance and Accounts, Thomas Cook (India)
GST is seen as a relief by customers over the current service tax which saw a doubling of the rate from 4.5% to 9%. Also, the increase on international air tickets is marginal from 1.5% to 1.8% and we do not foresee any impact. This applies to domestic air tickets too with a change from 0.75% to 0.9% The levy via a management fee model i.e. 18% will see negligible impact from a retail perspective - the charge being INR 90 on a fee of say INR 500 per ticket. However, the sheer complexity in the execution or compliance that we see significant challenges in as filing is required at multiple levels and hence involving a substantial increase in effort and time.

Guldeep Singh Sahni, President, OTOAI
In the long run GST is going be price effective but the present face is very confusing. For outbound tour operators, 5% will escalate .50% price as we were paying at 4.5% before January 22, 2017. The outbound tour operators were already complaining about 4.5% as we had become price-incompetent. Now when we are at 5% we will have to pay 5% GST and add our profit margins on the top of it. Given the high rates quoted by us, customers might directly buy from hotels. Also, in comparison to overseas booking portals, we will become highly uncompetitive.

Rakshit Desai, MD, FCM Travel Solutions
The multiple rate structure of GST has the potential to transform India and bring huge effective changes. Classifying into groups, the new norms will definitely maximise the potential of the travel and tourism sector, especially for budget travellers. However, we feel that there is lack of clarity from service providers such as airlines on the service tax process. There is need for industry-level group to clear GST doubts for better implementation. In addition, centralised registration of GST could have led to ease of business.

Himmat Anand, Founder, Tree of Life Resorts and Hotels
The hospitality sector will be spared from the maze of taxes we had to apply previously. Undoubtedly, there will be an initial pain in getting used to the new system of accounting and credit inputs. I guess we all will get used to it after the first few months of implementation. Issues like the fluctuating seasonal rates which will make us shift between the 18% and 28% band and also the fact that our hotels have a mix of non-air conditioned and air conditioned restaurants etc., will now have to be dealt with individually and systems will have to be put in place accordingly. All in all, it’s really a matter of refining and learning as we go along. India finally steps into a logical framework, which was actually long due. Without doubt, this Government has the capacity to take some very firm and challenging steps as we have seen in the past. Much as the cynics continue to run down whatever the government does, the country is on its way to ‘ache din’!

Manheer Singh Sethi, Co-Founder,
GST is a mixed bag of better and easier rules and regulations and increased costs and compliances. With the implementation of GST, not only the GDP is expected to grow by about 2%, India will also be seen as an economy where the ease of doing business factor will improve by leaps and bounds. However, it’s too early to predict the overall effect of GST on the common man. The 5% rates on travel agency services and the revision in GST slab for hotels up to INR 7500 room rent from 28% to 18% are a welcome move. However, the rates in the hospitality and F&B sector are too complex and high. On the other hand, hotels and lodges charging per-day tariff of INR 1,000 will be exempt from GST, while those charging up to INR 2,500 per day will pay 12%. A lower tax rate for budget hotel segment will ensure that the industry’s quality upgrade continues while delivering standardised accommodation to millions of middle-class travellers. Currently, lower budget hotels make up about 80% of the hospitality market in India. This will also save and create thousands of new jobs, which could have been adversely impacted by higher tax rates.

GMJ Thampy, Founder & CMD, Riya Group
With the implementation of GST, there will be a few changes on the tax rate for economy class flight tickets and the business-class flight tickets but nothing major. Frequent flyers will face a marginal increase in business-class tickets, which should not have a significant impact on the air travel industry. At the beginning, we expect some hassles with regards to obtaining GSTIN numbers from our sub-agents, which in turn might affect availing of input credit. Even though it will take some time, finally it will result in more administrative efficiency. On the operations front as ticketing players, we will have to make our GDS system more compatible with the requirements put down by the airlines. Next, tax invoices will have to be mandatorily raised on the airlines periodically, for the timely release of commission from them. There will be other areas wherein we will have to bring in changes in the operational processes. Also, change in Indirect taxes always has repercussions on the business. The automation of the GST network will bring about transparency as each invoice will have to be verified on a real-time basis without which no credit can be claimed by the recipient of the service. So, we will have to just wait and see how much of a game- changer it turns out to be.

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