The tourism ministry is confident that the 8 per cent service tax on travel agents will be scrapped in the forthcoming Budget. The repeal can lead to a direct reduction of about 8 per cent in the total cost of inbound as well as domestic travel packages.
The proposal is part of the tourism ministry's Budget wishlist that is being worked on for the finance ministry.
Last year, the government had abolished the hotel expenditure tax of 10 per cent.
"Though the hotel expenditure tax was completely removed last year, it failed to have the desirable effect on promoting Indian travel packages globally because of the high tax on service operators. The removal of service tax on operators would, thus, give the required boost," a senior government official told Business Standard.
Tourism ministry officials said compared with only 1-3 pages in any international travel brochure a year back, the number of pages dedicated to India had increased to 10-15 now.
The actual demand could further go up if the packages had been made more attractive, they added.
A two-night travel package to India costs $250 compared with similar packages at around $100 for other competing south-east Asian destinations including Singapore, Thailand, Malaysia and Sri Lanka.
"Also, in a package of $100 in India, the tax component on account of taxes paid by transporters (road tax), air tickets (inland air travel tax and a passenger service fee) and hotels (luxury and service tax) is about $30-40.
"On top of that, we are required to pay an 8 per cent service tax which results in a cascading effect," Stic Travels chairman Subhash Goyal said.
On the issue of whether the travel agents and tour operator sector, which earns about Rs 15,000 crore (Rs 150 billion) of foreign exchange for the country, will pass on the benefit to the customers, Indian Association of Tour Operators president Maharaj IS Wahi said that they would not have a choice since they work on very thin margins.
"Besides, we have to compete with other cheaper destinations as well," he added.
Travel agents feel that the service tax, besides making the Indian packages uncompetitive, is hurting the interests of the tour operators and causing a significant reduction in foreign exchange earnings.
In case a passenger wants to travel to various Asian countries including India, he will bypass the Indian operator and would organise the travel through any other operator based in Nepal or elsewhere where the service tax is not applicable, Goyal said.
Wahi added that the removal of service tax would end disparity in prices between tour operators (who have to pay an 8 per cent service tax for the same hotel package) and hotels (who are exempt from this tax).
The service exemption will benefit the budget travellers who are currently paying an 8 per cent service tax if they are staying in hotels paying less than Rs 3000 per room for a night, travel agents point out.
In addition, this will save the travel agents from the burden of maintaining a detailed account of the entire business transactions, they said.
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