Skift Take
— Bulbul Dhawan
In February, the Indian government had allocated INR 24.5 billion ($293 million) to the tourism sector as part of the interim budget, a slight increase from the prior year’s initial allocation of INR 24 billion ($290 million).
But the Union Budget also reduced the global promotion allocation by a staggering 97% to just INR 30 million ($361,000).
The reduction came even as there have been significant efforts to upgrade and develop destinations across the country and travel makes up a bigger part of the Indian economy: A total contribution of about $200 billion, or just over 6% to the country’s GDP, according to the India Brand Equity Foundation (IBEF). The government wants to increase this contribution to 10%.
The recent elections saw the return of Modi as Prime Minister, but the government in power is a coalition one with a budget to be presented later this month.
Skift spoke to travel executives to better understand what they want out of the budget and government policy:
Travel companies have long wanted “industry status” for tourism, a recognition at the state-level that gives the opportunity for better property tax calculations, benefits in land allocations, energy costs, and other government benefits.
Some states have already granted the industry status, including Assam, Rajasthan, Uttar Pradesh, and Gujarat, but the hope is for it to be broader.
“Recognizing tourism as a sustainable engine for economic growth and development, it is imperative to accord industry status to the travel and tourism sector, which will help in the regularization of policies and processes,” said Amit Jain, founder of travel company MagicFares.
At present, the hotel rooms are taxed on a tiered basis under the Goods and Services Tax (GST) regime.
“The tiered GST based on hotel room tariffs can lead to price disparities as hotels adjust room rates based on demand and peak season rates. For example, a room night costing INR 10,000 ($120) falls under the 18% GST rate, while an off-season rate of INR 7,000 ($84) falls under the 12% GST rate. We urge the government to consider a uniform GST rate of 12% on hotels,” said Rajesh Magow, Co-founder and Group CEO, MakeMyTrip.
The Hotel Association of India (HAI) has also sought the lowering of GST rate from the current 18%.
According to Magow, online travel companies in the country are facing challenges in obtaining required registrations under the GST regime.
“The current regulation compels OTAs to establish a physical presence in each state even when it is not required, leading to high administrative costs. Allowing OTAs to register in states through their central head office would significantly alleviate these burdens, streamline operations, and enhance efficiency. Furthermore, this requirement puts domestic OTAs at a disadvantage compared to international competitors who are not subjected to similar regulations,” he said.
Magow has also called for removal of disparities between ecommerce operators and ecommerce suppliers within the domestic market. “Currently, a customer pays a 5% GST charge when booking a non-AC bus through an ecommerce platform. This charge is zero for a direct booking from bus operator irrespective whether it is done in online or offline mode.”
The hospitality sector has often complained about high taxes, and expensive and cumbersome rules for licenses. Infrastructure status for hotels will allow them access to softer finances at better interest rates with longer periods for re-payment thereby attracting investment.
“The hospitality sector is capital intensive and requires substantial investments. Our long-standing demand for infrastructure status and industry benefits at the state level will provide advantages such as lower utility tariffs, reduced property taxes, easier access to finance, and softer loans. These are crucial for reducing the cost of doing business, ensuring the long-term viability of the sector,” said Sanjay Sethi, MD and CEO, Chalet Hotels Limited.
There has been overcrowding of popular tourist destinations across the country, prompting Tamil Nadu, Madhya Pradesh, and Uttarakhand, to look at measures curbing this issue.
Magow has urged the government to encourage corporations to invest in developing and improving tourist destinations as part of a corporate social responsibility (CSR) initiative.
“A weighted deduction under income tax and under GST on CSR funds deployed to improve tourist destinations will garner larger participation from the private sector. Such a symbiotic relationship not only helps preserve tourist sites but also ensures all-around sustainable development,” he said.
He further called for tax incentives to hotels and homestays adopting sustainable practices aligning with the United Nations Sustainable Development Goals, particularly SDG 11 (Sustainable Cities and Communities) and SDG 13 (Climate Action).
Photo Credit: Travel and tourism are two of the largest industries in India, with a total contribution of about $199.6 billion to the country’s GDP.
