Indian travel industry seeks tax breaks to make it more competitive

Published on : Wednesday, January 25, 2017

India tourismTravel industry today is a highly taxed sector in the Indian economy, a fact that makes it less competitive and relatively less attractive to foreign travellers. To make things worse, the government recently announced an increase in service tax on tours or holiday packages from 4.5% to 9%.



Travel and tourism is a major sector that is doesn’t just support a leisure activity, but also brings multiplier benefits for the economy. It doesn’t make business sense to impose hefty taxes on this sector which in a way tend to discourage travellers from abroad from coming to India. For a foreign tourist, countries like Thailand and Vietnam offer a much cheaper travel experience. India is truly incredible from a tourist’s perspective. However, the travel sector in India needs the government’s support in making the tourism sector as viable as any of these countries, particularly given the fact that the Tourism and Hospitality Industries are among the largest employment generating Industries and also among the significantly large Foreign Exchange earners.



​The start-up community, especially start-up travel portals look forward to some tax incentives in the upcoming budget.  Demonetisation has affected business in the travel sector and led to a slow down especially for start-ups in the travel trade. The travel industry hopes that the demands of start-ups, including exemption from the minimum alternate tax, will be conceded by the Finance Minister in the coming Budget.



The travel and tourism industry is a dynamic one. From the perspective of Indian travellers, today, there is a change in the traditional segment, from the usual domestic destinations to outbound travel — Dubai, Thailand, Malaysia, Bangkok, Europe, indeed, the entire world. Experiential travel is becoming popular. There are also and niche segments: Adventure and Sports Travel, Spiritual Tours, Health and Wellness Destinations, Culinary/Wine Tours etc. etc. But by and large, holiday decisions in India are still driven by price and value of service. The challenge for the tourism industry is to cater to the demand for new activities and destinations.



From the budget the tourism industry expects:



— Rollback of the service tax introduced recently on holiday packages


— Measures to improve liquidity in the system severally affected by demonetization


— Tax reforms and reducing tax rates so that there is more disposable income in the hands of people. More disposal incomes translate into greater expenditure including on travel and tourism


— Investment in improving road infrastructure to make road travelling more attractive



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