The Goods and Services Tax (GST) regime, which was introduced a fortnight ago, has put the travel industry in a tizzy — with some players stating that it would result in domestic and inbound travel becoming expensive.
“For inbound traffic, GST is negative and complicated. It has made travelling in India more expensive. It is a mixed bag of sorts. The challenge is that there are so many different rates of tax which are not very clear,” FCM Travel Solutions Executive Director (Leisure Businesses) Shravan Gupta said.
A tour package includes several components like transportation (airline flights), meals (at restaurants), sightseeing and hotels. When availing a particular domestic tour package, against the backdrop of the GST regime, customers would be charged a range of different rates depending on the services and conveniences they purchase.For instance, in terms of business class air travel, the GST slab is 12%, while for economy class, the slab is 5%.
Similarly, in terms of room rent in hotels, there are only three slabs under GST – from Rs 0-2,500 at 5%, Rs 2,500-7,500 at 18%, and above Rs 7,500 at 28%.
Travel companies feel that this lack of clarity in the way hotels are taxed under GST is bound to affect the cost of domestic travel in India. “There is no clarity on whether GST should be charged on (hotel) rack rate, or contracted rate. Hotels have taken the view now to charge on the rack rate, which is making it further expensive,” he said, adding that a majority of travel within India happens with mid- or high-end accommodation (at 18% or 28%).
Meanwhile, the service tax on tour packages which hit 9% in February, has been subsumed under GST, which stands at 5%.
According to SOTC Travel Managing Director Vishal Suri, “The 5% GST rate on tour packages is a welcome move for consumers. However, high-end hotels and business class air travel is going to be costlier under the GST. Inthe long term though, it is expected to enable much-required growth that the travel industry needs.”
Thomas Cook, meanwhile, claims to witness minimal impact from GST. Talking to DH, Thomas Cook India Group CFO and President (Finance and Accounts) Debasis Nandy said, “The GST for tour packages, both domestic and international, has seen a marginal increase from 4.5% to 5%, and as such, we haven’t seen any impact on holiday demand; in fact, this is seen as a relief by consumers as it compares extremely favourable against the current service tax which saw a doubling of the rate from 4.5% to 9%.”
