International tour packages are set to get costlier by 5 per cent under the Tax Collected at Source (TCS) regime proposed in the Budget 2020. The new proposal on outbound tour packages will not only act as a dampener, but will impact the travel industry in many ways, say industry players as they are all hoping for relief in this issue.
Prashant Nayak / Sonika Bhandari
According to the new provisions of The Finance Bill 2020, an amendment to Section 206C of the IT Act with regard to Tax Collected at Source (TCS) has been proposed to levy and collect 5 per cent tax on overseas remittance and sale of outbound packages from April 1, 2020. As per the Budget proposals, TCS will be collected on:
- Remittance under Liberalised Remittance Scheme (LRS) of RBI for amount exceeding Rs 7 Lakh in a financial year;
- Sale of an overseas tour package through a tour operator.
The new provisions regarding TCS on overseas tour packages requires that a seller of overseas tour package shall collect TCS at the rate of 5 per cent or 10 per cent (if PAN/Aadhaar is not available) on total amount from the purchaser at the time of receiving the payment for the tour package and includes expenses for travel or hotel stay or boarding or lodging.
It is said that the Enforcement Directorate has come across several cases in which the liberalised remittance scheme was misused by some to carry out untoward payments. They found data revealing a large number of those remitting money abroad under this scheme were non tax payers; normally they should be. The government imposed TCS (similar to TDS on remittances) to enable better tracking and allow the department to collect tax on such transactions. If one does not file the return, the government gets to keep the 5 per cent.
Indian travel companies will now have to pay this extra tax every month. They need to file returns for the same in every quarter. In addition to the existing compliance of GST and another filing, this will also need extra time and additional money. The other thing is that a company’s profit should be an internal policy. However, this tax will lead to exposure of the earnings and margin to the consumer. TCS will be applicable to the total selling price, so it will also cost to the seller of the package. This is really unfair for business as a travel company is already paying GST and Income Tax. There is no clarity for a refund of the amount to the consumer by the travel company. Credit for the same shall be available to the consumer when filing tax.
However, the industry experts are more worried about unemployment and business closure. The impact of TCS will result in lower business volumes, marginalising expenses, scaling down or worse shutting down of businesses. Eventually, this will lead to widespread job losses in a country where the government, ironically, propagates ‘Make in India’.
The move could potentially impact 100,000 plus outbound travel agencies employing over two million individuals. They also opine that the travel industry in the world is on its last legs due to the COVID-19 phenomenon. Airlines/hotels/ travel agencies have seen up to 90 per cent drop in business with IATA announcing that airlines will face the worst year ever in aviation and tourism history.
TCS will make Indian travel companies expensive and non-competitive against entities registered abroad. Presently, there is no restriction for a traveller to pay through credit card or direct cash payment to a foreign hotel directly or to an OTA registered abroad. Neither are they liable to pay TCS. The important thing to note is that TCS is not applicable if a passenger books directly with a foreign travel entity.
This will also lead to many unwanted situations like massive tax loss because a travel company pays 5 per cent to 18 per cent GST. A foreign portal pays zero per cent GST and foreign hotel is exempt from GST. In Addition, Indian travel companies pay income tax, shift of bookings by Indian clients to foreign players, will lead to decrease in their incomes and consequently their tax payments. This is expected to lead to job losses of 2-3 lakhs across India. Also, there is a good possibility that the tour operator will pass on the taxes to the customers which will discourage people from travelling abroad.
The compliance issue created will be unmanageable, since there is no way currently, to track the INR 700,000 limit if remitting via LRS, leading to impossible amounts of paper work for small companies. Not to mention increase in cost and time involved for additional compliances for return filings and payments. Tracking of aggregate limits of INR 700,000 or more poses a challenge since there is no clarity on the mechanism for either the travel companies or the government resulting in delay in closing the transactions. In addition, any dealer mark-up which agents often have to keep at the time of quoting, to hedge against FX fluctuations will also get unshielded.
Meanwhile, there are some travel associations in India such as OTOAI, TAAI, FAITH that are working towards withdrawal of provision of TCS. A representation was made by OTOAI on this aspect. Then, again on March 12, 2020, a delegation comprising Riaz Munshi, President, Shravan Bhalla, General Secretary, Guldeep Singh Sahni, former President and Raghuvinder Singh, Active member had met Rupinder Brar, Addl. Director General, Ministry of Tourism, Government of India, and presented a second detailed representation on TCS. A letter regarding the same was submitted at her office. Brar has assured that OTOAI’s representation will be forwarded to Ministry of Finance, Govt. of India with Ministry of Tourism’s recommendations.
TAAI (Travel Agents Association of India) also had a meeting with Finance Ministry officials and continues to remain in touch with the Ministry of Tourism (MoT) and Ministry of Finance (MoF) to seek assistance in deferring this TCS.
Very recently, on March 20, showcasing solidarity and raising serious concerns in relation to the pandemic COVID – 19, other associations like FAITH (Federation of Associations in Indian Tourism & Hospitality), along with CII Tourism National Committee and ASSOCHAM Tourism sub-committee has sent a joint letter to Smt. Nirmala Sitharaman, Honourable Finance Minister, Government of India, New Delhi and are looking forward to her urgent intervention. They have appealed in one of the points as to not introduce TCS as proposed in the Finance Bill. The Minister has assured to look into the points as presented.
TTJ spoke with a few industry members to gauge the scenario.
The new provisionary law has put our entire industry under an onerous, cumbersome and complicated responsibility of collecting taxes by way of TCS from the overseas travellers, depositing such taxes with the government and then filing returns as laid down in the law. This is an additional burden which would impose huge costs and would require deployment of extra staff, maintenance of accounts, filing of returns, etc. All these requirements will add to capacity building and incur huge costs at a time when the industry is reeling under the crisis of COVID-19 and has come to a complete halt. This is highly unfavourable and would result in heavy slowdown of the business.
We at OTOAI, have met with Rupinder Brar, Addl. Director General Ministry of Tourism, Government of India, and Kamlesh Varshney, Joint Secretary TPL, Ministry of Finance and have explained in detail, both the present situation and one that will arise after TCS implementation. Both of them have given an assurance of looking at our issues in a positive manner.
We also took to the television platform and have requested the Ministry of Finance on ‘NDTV Morning News’ and ‘NDTV Talk Show Hum Log’ that TCS should not be implemented and most-certainly be deferred in the present situation. We have been assured that our request will be positively looked into and we are hopeful that the Ministry will soon announce a favourable decision.
My only advice at this point would be to stay united and stand strong. We are all in this together, so let’s think positive and be ready with new ideas to bounce back strongly. Right now, our utmost priority has to be safe guarding from COVID-19 and then together, we will face the other critical situations like TCS.
We are still reeling under the GST clarity and implementation and for another tax to come, is really going to kill the market. TCS is going to have a very negative impact on the industry, so from the platform of TAAI, we are raising our concerns through national media besides meeting and giving representations to Ministries of Finance, Tourism, Commerce and Aviation. TCS is going to affect outbound as well as inbound traffic. Moreover, it will encourage circulation of black money, besides defeating the concept of ‘Make-in-India’. It is not out of place to mention that travel agents/tour operators are not the tax collectors of Ministry of Finance. We have been taking up the issue vigorously and hope for the positive outcome.
The Government says they have introduced the 5 per cent TCS on overseas tour packages with an aim to plug revenue leakage and to enable better tracking and allow the department to collect tax on such transactions. This will probably be the straw that breaks the camel’s back. If the government has a specific reason to plug revenue leakage, that can be better addressed by regulation, additional paperwork and checking source of the payments. But, to simply tax outbound remittances is insane. There are many travellers who are senior citizens or don’t pay taxes for other reasons. They will have little chance of getting the tax back at the end of the year. It will unfairly affect the cash flow of travellers as well. The whole industry is alarmed and this will completely change the buyer’s behaviour.
Today, with the world of internet, there is nothing the Indian consumer cannot buy directly through online travel portals or other suppliers. What will happen is that, we will once again go back to the old system of ‘hawala’ transactions on paying on foreign exchange and black money will be used a lot more effectively. At the end of the day, the Indian economy will lose business for sure. I know, all the associations and our nodal body, FAITH is working overtime on this. It is a very unfair law for sure. But, all I know is, if everyone works together, we will win.
TCS introduced in the recent budget is with a sole purpose to get the details of overseas Indian travellers and include them in Tax net. However, I think tax planners in government didn’t give much needed thoughts on its severe impact on tourism industry. The worst impact of TCS will be on outbound tour operators because not only their tour packages for travellers will be expensive by 5 per cent or 10 per cent but they will also have threat of losing their business to hands of overseas online travel agencies, who are not obliged to charge TCS. The tax will also be applicable for inbound tour operators who sell their packages to foreign tourist as it is not defined in law if TCS is only applicable on Indian citizens. Secondly, high chances are there that if this business goes to overseas tour operators then the Indian government stands to lose GST earnings as well. So, in my opinion, the Finance Minister and team should look in to the matter immediately and rollback the tax in the interest of tour operators in India.
As the global economy is opening and expanding, the travel industry will not go down except when it’s in a pandemic situation like now. There is only going to be a shift in the way transactions will be conducted. OTA’s are already offering the options of guaranteed booking and payment on checkout. They are also offering no charges on cancellation of bookings. So, how will the government handle or track such kind of bookings? If the government cannot give security to its own economy, how do they expect increase in tax collection? So instead of taxing only the local operator, they must try and recognise this industry and formulate policies to curb unfair trade practices like undercutting and overselling. Either, the government must withdraw this tax or track and tax the OTA’s too.
So, my advice on this subject is to unite like you do for networking and dinner parties. We need to stop services for a week for the customer and the principal to realise our importance. Make minimum retention a rule. Boycott those who are underselling or offering bank interest to provide online cash backs. Make consortiums to identify and boycott those who are planning or committing frauds. There is scope to earn but the industry needs regulation.
Pankaj Nagpal, Managing Director, Travstarz
The proposed TCS is one of the most draconian measures to be implemented by the Government and is totally against the travel industry and could be the last nail in the coffin, resulting in total collapse of the industry affecting millions of jobs directly and indirectly. The Government has shown scant regard to the thriving but troubled tourism industry and has totally ignored the drastic implications of such a step.
The industry is absolutely alarmed and shocked with such illogical decisions of the Government and like I said before, the step is extremely negative and draconian in nature where the government is trying to over regulate the industry which will have wide spread ramifications. If implemented, this will be the end of the travel industry in India as we will not be able to sustain one blow after another that we have been receiving for the past few years, since this government took office. By taking such decisions, the government has shown least regard for the travel industry, which is one of the highest job generators in the country.
This time the industry has to unite as a whole and most associations have already taken this up with relevant ministries. However, I feel a much more aggressive approach is needed to shake this Government and stop it from taking anti-people and anti-business decisions, one after the other.
The travel industry is already surviving on low margins and battling huge competition. After TCS, the cost of our packages would go up and overseas registered DMCs, travel companies and hotels will be able to offer lower rates. Clients who are comfortable using their credit cards online would prefer making direct bookings instead of using the services of a travel agent based in India.
Outbound tour operators are facing too many challenges to keep their businesses afloat from competing with OTA’s and now to facing the global crisis of COVID-19. We can already foresee an unprecedented slump in the next few months which unfortunately happens to be India’s main holiday season. My advice to the travel fraternity would be to stay positive, together and raise their collective voice against TCS.
It has to be noted that travel is no longer a discretionary spend and is certainly not meant for the rich. People are saving up their salaries to travel.
We are indeed alarmed with this matter; this is going to disrupt the business of travel agents in India. It is a chain reaction. Travel agencies’ losing out business is going to damage our business as well. It has to be noted that 70 percent bookings in India are done through the travel agencies and the rest 30 per cent is accounted for online business. If travel agents don’t win, companies like us don’t win either. The travel trade is the most important and crucial aspect for our line of business.
As a member of the industry, I feel we should seek support from other members and have to do everything to support the travel fraternity in India. The government should defer this rule. We are amidst the ever growing bad situation of COVID-19 and we really can’t afford to take another blow.
At the outset it is an unfair burden on the travel and tourism trade. Apart from TDS, I-T, Corporate Tax and GST, the government is using the businesses as their unpaid agents to collect information on errant citizens (tax avoiders). The main unfair point is that it is biased against Indian registered businesses. Travellers are free to make reservations directly with businesses based abroad, (hotels, DMCs, online portals, etc) and avoid GST plus TCS. I am surprised at the blind spot of the government on this point.
It seems obvious that the government’s reporting systems have failed to notify it of tax avoiders travelling abroad. Isn’t the passport linked to the Adhaar and PAN card? Why can’t the immigration system on scanning the passport generate a report without exception to the tax authorities of tax avoiders/non payers travelling abroad? In my opinion that is what excellent governance is all about.
The government has said that a very small percentage of the population pays income tax. The scope of increasing this group is limited. Why then create a huge missile to kill a mosquito? TCS will encourage ‘hawala’ transactions, pushing a substantial amount of tourism business to offshore companies and devoid the government of GST, income tax and corporation tax. Not to mention job losses, business closure and civil and psychological unrest among the citizens. All travel professionals, including us, will suffer drop in business. Already thin margins, owing to competition, will be further eroded due to the cost of compliance.
The matter is already in discussion among the trade members to unite all trade associations and bodies to advise the government on its tourism policy. Making a joint professional representation to the government, ensuring the trade recognised as an industry, requesting the trade help the government in its fight against black money and urging the government to simplify the tax regime, so that tax avoidance is drastically reduced.
In my opinion, the TCS will not go away; it may be reviewed in respect of the percentage and implementation date. Lastly, there needs to be a complete overhaul of the whole system. Ideally, the government should encourage job creation at all levels, simplifying the tax regime, perhaps abolishing some taxes (prime example is I-T, as such a small percentage of the population is paying it), making GST simpler and increase the speed of development of infrastructure (roads, airports, railways). The whole world is looking at India to become an economic super power but we many a times falter near the finishing line.
It was an eye-opener when our Prime Minister, Shri. Narendra Modi announced that out of 3 crore Indian travellers internationally, only 1.5 lakhs are taxpayers, but the TCS implications has a lot of grey areas. Is it for only tour packages or is it for all outbound hotel as well as all services in foreign exchange? If applicable only to tour operators then it will not serve its purpose as only about 2.5 lakhs or so would be affected under the net. All other, IT or online driven bookings would be out of it. Also, if all transactions are taxable, too many transactions would be under it with minimal revenue, affecting huge infrastructure.
TCS will definitely have a very far reaching effect for two reasons. One, that the timing of the implementation is when the whole industry is reeling under the COVID-19 effect which is a big blow to the industry and secondly, if the online booking hotel portals are left out of the cover of this law or act, the tour operator will bear the brunt as people will book online where revenue will not be under scrutiny and full advantage of it will be taken by foreign companies, leaving the travel trade in India in shatters. This announcement is not only a dampener but a death knell for the Indian travel trade and agents owing to lack of clarity. Only, if we get to the level of online portals and hotel-booking websites, can our business be saved.
As we know COVID-19 has broken the spine of the tourism industry and a lot of airlines, hotels and travel companies are on the verge of bankruptcy, but on the other side, the government is ready to put the last nail in the coffin for outbound tour operators with its plan to implement TCS. The government, at this time, should support and give bailout package to tourism industry especially to SMEs, however, the government seems to be working in the direction to kill the small outbound tour operators.
We are into representation business and we represent DMCs from various countries so it’ll certainly have a negative impact on us as well as our b2c partners in India will be affected. As part of the tourism industry, we are actively promoting and creating awareness among travel fraternity for campaigns such as #SaveTravelIndustry and #NOTCSTAX on social media and through our regular e-mailers to our b2b network pan India, so that it is being noticed by the government and more and more travel companies can come in active support of this campaign. These campaigns are among top trending topics on social media with efforts of the travel fraternity. Also, I have personally contacted more than 25 mainstream media friends seeking their support on this issue by giving wide coverage on this matter. My only advice to travel fraternity is to strongly support such campaigns in big numbers and to come together against this tax.
TTJ’s view: Every single outbound travel agent is demanding the rollback of this tax. However, if implemented, this tax will promote foreign companies in India and over the time, guests will start booking their overseas tour packages with them only. The government is forcing travel agents to close down their business and open a company abroad or invite foreign entities to do business in India. Our country is passing through tough time in terms of the economy slow down and the ongoing Covid-19 disaster. On top of that, if this tax is implemented, it will lead to more unemployment and shut down of small travel companies. Worldwide, already, massive job losses are taking place in many countries and some are even preparing special emergency rescue package for the travel industry. Thailand, Singapore and Hong Kong have already announced tax exemption or financial aid to agents/operators. Hoping, our government too understands and listens to the travel industry’s grievance and restores faith of the stakeholders, to some extent.