Photo Credit: Porapak Apichodilok
Indian travel agents and trade associations have expressed their disappointment on the government’s budget proposal to collect five percent income tax at source (TCS) from outbound travellers that is expected to be implemented from April 1, 2020.
Although TCS is not an additional tax as the amount paid will be adjusted later with a total tax liability of an individual, the move is likely to affect the cash flow of travellers besides leading travellers to book holidays with international travel agents to save on additional cost.
“The introduction of TCS will increase compliance cost of local companies and will be contrary to ease of doing business. Even though it is being said that one can apply for a refund of this extra amount later, the issue is that cash flow will be blocked. A major concern is that travellers may book directly outside the country. There will be a natural incentive of 10% (5% GST + 5% TCS) for travellers making arrangements directly with overseas suppliers and settling in cash on arrival,” said Rakshit Desai, MD, FCM Travel Solutions – the Indian subsidiary of Flight Centre Travel Group.
According to industry stakeholders, the directive will further make India travel agents uncompetitive vis-à-vis foreign travel companies. There is also no threshold on the cost of a tour package so even lesser expensive outbound packages will attract TCS.
“I don’t know what’s the rationale behind TCS on tour packages. Even tour managers are travelling two to three times a month so I am not sure how such an outbound travel will be categorized. For travellers booking with international tour operators, there will be a cost difference of straight 10 per cent as in such bookings one doesn’t need to pay either GST or TCS. This means that for travellers it is going to be more expensive if they are buying in India. Also, in case of group travel where an individual or a company is making payment, they will avoid us and directly contact the suppliers and make direct payments to avoid taxes,” said Riaz Munshi, President, Outbound Tour Operators Association of India (OTOAI).
Associations like OTOAI and the Travel Agents Association of India (TAAI) have also taken up the issue with various bodies including the Prime Minister’s Office (PMO), Niti Aayog, Ministry of Finance, Central Board of Direct Taxes (CBDT) and Ministry of Commerce & Industry.
“Ease of doing business has become a redundant word for our industry. The government should take the stakeholders into confidence and address their queries before implementing such a directive. The effect of TCS is going to be far and wide. It is going to displace business from Indian travel companies. TCS is going to create huge additional costs of compliance. Moreover, the cash flow of travellers will also be impacted,” said Jyoti Mayal, President, TAAI.
Mayal also expressed her concern that TCS may result in travellers booking holidays online with international travel agents. “In today’s technology-driven world it is surely going to happen. Traveller will find more ways of eluding the net of taxes and especially where the costing gets much higher. Bad practices like illegal transfers of money will also come into play. Even travel agents are looking at opening their offices in neighbouring countries,” she added.