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Friday, 11 September, 2020, 15 : 51 PM [IST]

TCS to sound death knell for Indian tour operators: FAITH

The Federation of Associations in Indian Tourism & Hospitality (FAITH) and cause partner AIRDA has requested the government for complete abolition of the proposed TCS (Tax Collected on Source) 5% tax on outbound travel from October 1. The umbrella body believes that the implementation of TCS would sound as the death knell for many micro, small and medium travel and tour companies already reeling under the threat of globally funded e-commerce players.

“The TCS is noncompetitive and its implementation will have an unprecedented negative impact on Indian travel agents and tour operators. The tourism product sold from India will become almost 5% - 10% more expensive at the time of booking as against when booked through travel companies based outside of India,” FAITH has said.

Its imposition which was supposed to happen on April 1st was deferred on request from the industry. However, it was not abolished and it is now set to be levied on October. 
India is now on Unlock 4 and travel corridors are now beginning to get opened up. Indian travel agents and tour operators are looking forward to some business income from revival of travel bookings. 
However, the TCS of 5% (10% on those without PAN) will instead of providing income to Indian travel agents and tour operators will shift it to foreign based travel booking agents & operators. This is due to its anti-competitive character against Indian travel intermediaries. This takes away their level playing field against foreign competitors. 
The tourism product sold from India will become almost 5% - 10% more expensive at the time of booking as against when booked through travel companies based outside of India.  As against these foreign based travel booking agents & operators, Indian travel agents & tour operators are already more  expensive by the imposition of 5% GST on tours which foreign  travel agents & tour operators are not subject to when they sell the same product for Indians who are travelling outbound. 
FAITH said that Indian travel and tour operators will also not be able to diversify and sell to international passengers who anyways are not subject to Indian tax laws and thus cannot claim any tax refunds. 
Indian tour operators and travel agents will also lose many business opportunities of selling our South Asia regional tourism products. This cluster approach is one of the key drivers for Indian inbound tourism.
FAITH Associations want the tax to go as it creates an unfair playing level for the outbound and inbound travel industry which is looking to restart from the ‘ BASE Zero’ will be impacted even if it attempts to revive. 
Needless to say it’s impact on employment and viability of Indian travel agents & tour operators will be devastating. 
Travel industry works on a bilateral open market basis. With the reduced travel outbound from India and insolvency of many travel entities the outbound travel from India will be heavily impacted. Consequently, with India becoming a lesser attractive travel source market, many global companies will also lose interest in promoting international  travel to India which was  16.5 million+ in 2018-10 (foreign tourist arrivals 10.5 + visiting friends and relatives 6 m +) and the resultant foreign exchange which is $28 bn +.
There will be an additional impact. A large proposition of workforce is employed by destination representation companies  through international tourism boards who will also seek to close offices as travel from India will become more expensive.  
This major loss of business will make financially unviable many travel agent businesses from India and will lead to mass scale job losses of Indian employees. There are an estimated 60000 + travel agencies with an estimated 20 lakh employees impacting them and will put in deep financial stress their 80 lakh plus family members. Needless to say, this shifting of revenue to companies outside of India will impact the resultant losses of income tax and GST revenue for the government. 
FAITH Associations said that Miscommunication & Reconciliation issues over TCS collected  will also lead to heavy additional cost of compliance for small companies ( which are almost 95% in this sector) and will open up the  potential for  litigation for multiple small value transactions on reconciliations between consumers and travel companies  which will threaten the credibility of the travel fraternity and also the tax administration. The travel agents & tour operators are grappling already with their credibility and business at risk with the issue of non cash refunds from airlines due to covid lockdowns and cancellations. 
FAITH said it is possible that the proposed TCS collection over the year may lead to an advance tax of an insignificant amount that will not move the needle even slightly in the cash flows of the tax revenues of the government. But for the 60,000 travel companies and their 20 lakh estimated employees across India, it will lead to loss of business, cost of compliance, litigations and environment of distrust and will sound the death knell of many Indian micro, small and medium travel and tour companies which are reeling under the threat of globally funded e commerce players. 
FAITH said that the Indian tourism industry is fully aligned to the nation’s need of enhancing tax compliance. Ensuring tax compliance on travel is already being effectively done through pan cards/Aadhaar cards/passport detail records of the travel bookers. 
FAITH has thus requested that the TCS on outbound travel as proposed in the Finance Bill 2020 U/S 206C and abolish its proposed implementation completely as it is highly regressive and anti-competitive tax on Indian travel industry.

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