Domestic travel agents (DTA) are up in arms against the finance ministry for creating a “non level-playing” field favouring overseas travel companies (such as tour operators and online aggregators) which, they say, will risk the viability of local businesses and make customers prefer the former.
In the last Budget, the Union finance ministry announced that the tax collected at source (TCS) on foreign remittances, including international bookings and tour packages, would be raised sharply from 5 per cent to 20 per cent from July 1. Overseas debit and credit card spends (on most items except education and healthcare) would also come under the new rule. This, DTAs say, provided them with a level playing field with overseas travel service players.
However, after a hue and cry, the finance ministry clarified that purchases of up to Rs 7 lakh per annum by individuals on credit or debit overseas will be exempted from paying TCS. However, the same exemption has not been granted to customers buying their tour packages from DTAs.
This means that if customers book through DTAs they have to fork out a TCS of 20 per cent as well as a goods and services tax (GST) of 5 per cent, without any exemption. But if they shift their bookings to overseas players, they need to pay TCS or GST only after the exemption limit of Rs 7 lakh is exceeded.
In a joint letter addressed to the finance minister this week, leading travel associations such as Travel Agents Federation of India (TAFI), Federation of Indian Chambers of Commerce and Industry, Associated Chambers of Commerce and Industry, Internet and Mobile Association of India among others say that the move “potentially puts the existence and survival of all small and medium DTAs under threat and risk”.
The letter argues that there should be parity in pricing and customer payment methodology between bookings made through DTAs and those made though overseas service providers. Ever since a TCS of 5 per cent was imposed in India, DTAs lost significant business to overseas players as customers would book from agents (global or domestic) which offered the best price.
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The letter says that with the government now imposing a TCS of 20 per cent in the Budget, the pricing gap is even more glaring and “can potentially move the entire travel bookings made by Indian consumers to overseas service providers”. After all, in the case of the latter, they do not have to pay either the higher TCS or the 5 per cent GST unless they exceed the cap.
Says Ajay Prakash, president of TAFI, “It’s a half-baked scheme, which has not been well thought out. Nearly 70 per cent of the business of domestic travel agents comes from overseas travel, so we expect this non-level-playing field created by the finance ministry to seriously impact our business from July 1 unless the exemption of Rs 7 lakh is extended to our customers as well.”
The domestic operators point out that by this move the government will suffer a loss in GST revenues since the quantum of the loss from DTAs’ dip in business will be much higher than the TCS collected from Indian customers booking through overseas service providers.