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The Long Route To Travel Reforms

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Travel and Tourism is the world's largest industry in terms of employment and holds immense potential for the Indian economy. It can provide impetus to other industries through backward and forward linkages and can contribute significantly to India's GDP. With increasing globalisation and opening of the Indian economy to the world, travel and tourism is gaining momentum. It is one of the major upcoming sectors with great potential for growth along with the ability to bring in a huge amount of foreign exchange for the country.

The industry provides large number of jobs in diverse areas through various related fields: in the last six years, it has created 11 million jobs and has the potential to create another 37 million jobs (estimated by the NSSO, Ministry of Tourism) of the 120 million projected requirement by 2020. It is imperative then that the government effectively capitalises on the strong potential of the Tourism Industry through the Union Budget 2013.

Inbound Tourism
The travel industry is one of the key employers and contributors to the exchequer. However, it is truly handicapped today. Be it multiple taxation to varying tax levels imposed by state governments, the Inbound travel business is rendered both expensive and challenging.
Reforms are a must and we would like to propose the following:
  • The Tourism industry should be given industry, export and infrastructure status
  • Service tax for Inbound Tour Operators should be exempted for a minimum of 3 years
  • ATF should be included in the 'Declared Goods' list for uniform taxation
  • Fuel Surcharge should be abolished to make air travel affordable within the country
  • Complex and multi-layered tax structures for state transport should be done away with 
  • A National Commission for Tourism should be formed directly under the leadership of the Prime Minister
  • Any policy change (increase in taxes) should have a window of minimum 1 year as Foreign Agents publish brochures a year in advance and it becomes difficult to collect supplements from customers after brochures are printed for worldwide circulation
  • Service Tax on Indian Tour Operators for services to tourists bound for SAARC countries should be abolished. Currently Indian DMCs are at a disadvantage and losing business and foreign exchange earnings to SAARC countries like Nepal, Sri Lanka, Bhutan, etc.
  • Private Players should be exempted from paying Tax to promote investments in PP partnership
Domestic Tourism
Reforms are equally vital to ensure we capitalise on Domestic Tourism, and key to the agenda are the following:
  • There are a plethora of taxes involved in a single holiday package such as luxury tax, sales tax, VAT, inter-state road tax, service tax, etc. With 25-30 per cent of the pricing comprising merely taxes, a domestic holiday turns out to be a rather costly affair. Often a holiday abroad is much cheaper! Hence we suggest the Government levy a single tax to promote domestic holidays
  •  Reduction of service tax on transport, especially in tourist hotspots, would be an ideal counter balance to reduce the burden of increased diesel prices
  • Adequate budget allocation is essential for infrastructural development especially in tourist destinations like Andaman-Nicobar, Kashmir-Ladakh, North-East India & Lakshadweep
  • Private investment needs to be promoted towards building hotels, theme parks and utility centres to propel tourism
  • Strong remedies for resurgence of domestic aviation sector are now extremely vital. A reduction in import duty on jet fuel would lower domestic airfares with a cascading positive impact to the sector
  • Friendly policies / tax-waivers to promote cruise-based holidays in India will supplement the growth of this field
Foreign Exchange
Since Foreign exchange is key to a country's reserves, specific incentives for money changing transactions are of grave importance
  • The Government should remove caps on foreign exchange limits for overseas travel for both corporate and non-corporate travel
  • Currencies in excess of $ 1000 equivalent should be permitted via plastic money through pre-loaded foreign exchange cards and credit cards. This is of value in tracking and preventing money laundering. Service tax on such transactions should also be discontinued
  •  Remittances regime maybe liberalized- AD II licenses could be permitted to remitcurrencies for corporates. For instance, through software companies to pay their employees stationed abroad on short assignments, for vendor payments etc.
  • To encourage the twin benefits of increased inflows of foreign currency and inbound tourism, service tax should be exempted for purchase transactions from foreign nationals
  • Service tax rates for students travelling abroad and transferring fees should also be reduced
  •  We strongly recommend the formation of a working group which should include members from the Ministry of Finance, Reserve Bank of India and a Foreign Exchange player to: review the current regulations on BTQ (Basic Travel Quota), LERMS (Liberalised Exchange Rate Mechanisms), as well as restrictions on Forex players for distribution, compliance, and draft  an effective liberalised policy which is relevant to the current and future customer needs
(Madhavan Menon, Managing Director, Thomas Cook (India)