Novel coronavirus pandemic has forced the world to recoil and a large number of countries have placed themselves into quarantine. This means a drastic cut in travel. People have been forced to cancel their travel plans. Most travel agencies and firms are facing closures and layoff.
This is the time when the tourism industry is bleeding profusely and needs the protection of the government. But it appears the government is oblivious to what is happening in the tourism sector, one of the major employment providers which can give fresh impetus to economic growth.
At such a time, the government has decided to levy a 5 per cent tax collection at source (TCS). This is in addition to applicable Goods and Services Tax (GST). Clearly, this move of the government has not been thought through.
Arne Sorenson, President and Chief Executive Officer of Marriott International recently said that he has not seen such a crisis in the last 96 years. For a company that’s 92 years old, that’s borne witness to the Great Depression, World War II, and many other economic and global crises, that’s saying something.
All the major travel agents associations of India are actively pursuing their cause and on this issue and have met government departments to highlight their plight. Thousands of travel agents are also running a #savetravelindustry and #NoTCStax campaign on Twitter against this additional tax applicable from April 1, 2020. However, there has been no positive response from the government yet.
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 online travel agent (OTA) registered abroad. Neither are liable to pay TCS.
Example: Price comparison pre and post TCS
Cost: INR 50,000
Cost to Indian Company pre TCS: INR 52,500 (50,000 Cost + 2,500 GST)
Cost to Indian Company post TCS: INR 55,000 (50,000 Cost + 2,500 GST + 2,500 TCS)
Cost to Foreign Entity remains: INR 50,000
The above example demonstrates that it would make an Indian company expensive by 10% (GST + TCS) at the very outset. As for the traveller, it would make a compelling case and choice to book directly with the foreign entity.
The move to levy 5% TCS on travel agencies has severe adverse implications.
1. It may render Indian companies totally uncompetitive. In absence of the ability to force compliance of these provisions of proposed 5 per cent TCS over and above 5 per cent GST makes Indian entities 10-15 per cent expensive compared to foreign-based players who take booking online and are not subjected to the same taxation.
2. This defeats the very purpose of Make in India programme. The increased taxation will force the clients or consumers to divert bookings to foreign entities. They can simply charge their card/make a reservation abroad and cut out Indian firms which are duly paying all the taxes.
3. The move is bound to cause loss of business forcing the Indian entities to lay off staff. Some of the travel firms may finally see closures.
4. This is no ease of doing business. Due to increased cost and time for filings and compliances, also due to lack of clarity of tracking aggregate foreign spends of customers to check the applicability of provisions. Agents need to employ extra staff leading to more expense.
WHAT INDUSTRY WANTS
1. The government should withdraw TCS.
2. Travel industry requires a relief package urgently. The government should additionally announce a GST holiday, particularly for smaller players of the business.
3. A loan waiver scheme on the lines of farm loan waiver for smaller players of the travel industry. The government should also announce a Tourism Boost package to revive sentiments of the industry.
The writer Anuj Singhal is the Founder of Travel Representation House