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TCS- Tightening the Noose

TCS (Tax Collection at Source) for overseas tours & packages

In a post-GST and COVID environment, the government bowled a bouncer with the introduction of a 5 per cent TCS on outbound travel. For an industry that was and is still gasping for a fresh lease of life, it was a hit below the belt. Immediate appeals and representations followed hoping for review and redressal but barely had the industry put its pen down to take a breather, the “Death Knell” struck! or at least that is how it is widely perceived. TCS rates are now hiked to 20 per cent and with the passing of the finance bill in the parliament is now a law. The industry stands shell-shocked, still trying to find the rationale behind this move. TTJ spoke to the captains of the industry to understand the implication, impact, and fallout of this move.

– Gurjit Singh Ahuja

The industry was delighted to hear the finance minister extolling the virtues of tourism as a major engine of growth and employment generation and overjoyed to learn that the government intended to move Tourism into “Mission Mode.” Industry stakeholders were confident that the tourism industry, which accounts for 5.8 per cent of the country’s GDP and contributes 178 billion USD to the economy, was finally poised to get due recognition and some tangible support from the government. But there is much of a slip between the cup and the lip, and as soon as the hike in TCS rate from 5 per cent to 20 per cent was proposed, the positivity vanished.

So why this hue and cry?

TCS is only applicable to outbound travel transactions and we have domestic travel, a very large chunk of it to cater to. “Dekho Apna Desh” is the new mantra, look inward and grow! With all due respect, the domestic travel opportunity is holistically huge on face value, but a very large chunk of it falls under religious, pilgrimage, and VFR categories where the role of the travel agent is completely missing in the value chain or hitherto performing a very limited role.

Yes, there is a domestic corporate and business travel market and also a market for domestic leisure and the agents are already handling that. The point to be noted here is that outbound travel is the other major half or more of any travel agent’s business mix and accounts for more than half his revenue and earnings. A hike in TCS rates affects this outbound business by loading the expense outlay of a customer who in all likelihood is already a taxpayer paying advance tax or TDS on his salary or income.

Jyoti Mayal, President, TAAI

Jyoti Mayal, President, Travel Agents Association of India (TAAI), elaborates, “The increase of TCS to 20 per cent from the existing 5 per cent has disturbed the entire travel agent’s fraternity, which in fact has been requesting for a complete removal of TCS since its implementation in October 2020. The proposed TCS will increase the cost of travel bookings by a whopping 25 percent (20 percent TCS and 5 percent GST). This additional levy will cause ticketing business from India to be shifted to travel agents and tour operators based out of the country and will also make Indian tour operators and travel agents lose vital business in the inter-region travel of South Asia.”

Ajay Prakash, President, TAFI

Ajay Prakash, President, Travel Agents Federation of India (TAFI), shares his sentiment, “Announcement of the huge upward revision in the rate of TCS on overseas tour packages from 5 per cent to 20 per cent came as a complete shock! This will devastate the outbound tourism business. Indian agents and tour operators will find it impossible to compete with overseas companies and online booking sites. It’s impossible to impose the same conditions on a company that’s not registered in India and is not subject to Indian taxation laws, with the combination of GST and TCS, the Indian agent will end up being a whopping 25 per cent more expensive for the identical package purchased overseas, that spells doom for the industry.”

In modern India where banking KYC norms are very strictly enforced, Aadhar and PAN are linked, and all credit card, and high-value transactions are monitored, an overseas traveller from India today cannot dodge the system or escape scrutiny for his overseas trip. May it be business or leisure, there are more than ample checks and balances already in place to monitor and track the real tax evaders.

Riaz Munshi, President, OTOAI

“The provisions of TCS are aimed at formalising the economy to facilitate better reporting of transactions and mitigate tax evasion. The Explanatory Memorandum to the Finance Bill, 2020, clearly states the intent to introduce TCS on tour operators is to expand the tax net. As the purchase of international tour packages is subject to TCS at 5 per cent, the information regarding the taxpayers subjected to TCS, including PAN details, is already available with the income-tax authorities. An increase in the rate of TCS will not facilitate the objective of gathering additional information regarding tax evaders,” explains Riaz Munshi, President, Outbound Tour Operators Association of India (OTOAI).

To avoid TCS and the initial additional cash outflow that is tantamount to almost double taxation, travellers may be easily tempted to book an entire overseas tour package or its individual components through foreign travel agents or their online booking websites providing an unwarranted advantage to the foreign travel agents, resulting in a loss of business and revenue to the Indian Travel agents and Tour operators.

Jyoti further said, “This decision is going to damage the industry on multiple levels. The fact is that more than 99 per cent of Indian travel agents are micro, small, and medium enterprises whose livelihood is based on travel bookings for outbound and domestic travel. International travel agents and tour operators do not have to the same tax structure, so the TCS increase gives them an edge over Indian agents. The additional cost of TCS and GST will make the situation worse and might even create a parallel economy with a possible relocation of Indian MSMEs to set up booking offices in international jurisdictions.”

Prrithviraj, Director, Eastbound

Sharing his thoughts on the hike in TCS rates, Prrithviraj Singh, Managing Director, 2HUB, opines, “Yes! it will impact the industry, only temporarily though. We may see some inhibitions in the beginning, but it will eventually be accepted. There is a huge pent-up demand for travel as people want to make up for lost travel opportunities in the past. I feel it could impact the budget or low-cost travel segment the most. I am certain that we will come up with solutions to cater to this problem too.”

Outbound travel plays a big role in the development of the country’s aviation scenario and route capacity build-up. Any flight into the country has an inbound and outbound leg. While the inbound leg gets hard currency from flying tourists into the country to see and experience Incredible India, the outbound leg from India promotes international travel. Thus, globalisation is the name of the game and today, and it is impossible to sacrifice one segment on the altar of the other without implications.

In the meantime, the industry and trade associations have not lost hope and are continuing in their efforts and endeavours to highlight their pain and make the government re-look and re-examine the case from the industry perspective.

On this, Jyoti shares, “While we condemn the move on TCS, as travel agents we stand with the government to identify potential tax evaders. We have written to the government bodies, including the Finance Ministry and the Tourism Secretary, and are having meetings with officers concerned to bring about some changes. Our suggestion to the Ministry of Tourism is to make PAN cards mandatory for outbound travel bookings for amounts above a certain level. PAN card information can be reconciled with the income tax returns of the PAN cardholder to identify and check for any tax abuse.”

OTOAI is also pursuing its endeavours. Riaz says, “We have written to the honourable finance minister highlighting our concerns and the consequent negative impact of the hike in TCS rates. We also engaged JMP Advisors, a leading professional services firm that offers advisory, tax, and regulatory services to put up our case with ministries. We met with senior CBDT officials to explain our concerns in detail.”

“TAFI has made a representation through FAITH to the Ministry of Tourism to help reverse this retrograde step and have also made an appeal to the Finance Ministry, and called on the Finance Secretary and elaborated the implications of this proposed hike. He has appreciated the validity of our arguments and agrees that the law should not work to the disadvantage of the Indian travel industry. We are cautiously awaiting further developments,” informed Ajay Prakash.

So, at present, with the passing of the finance bill 2023 with no amendments to the TCS rates, it looks like the government is in no mood to relent on its original stand. As the hike comes into effect from July 01, 2023, the Indian travel agent and traveller can still take advantage of the lower rates for their forthcoming outbound summer vacation season of April, May and June. Till then make hay while the sun shines and live to fight another day!