The Union government’s new proposal to collect Tax Collected at Source (TCS) from customers, will affect the travel and tourism industry very adversely. There is already a 5% GST on the holiday packages and an additional 5% of TCS will be a heavy burden for the prospective clients.
So how deeply will this affect us all?
As far as Indian culture is concerned, going on a holiday is not a necessary item like in the European community. If the cost of the tour increases heavily, naturally the prospective clients will postpone or cancel their holiday. That means business will again come down and will affect the industry very badly. This will result in job losses in the industry.
My understanding is that this system is aiming to find out tax evasion among clients and also to target high spending customers. But at this moment the banks are collecting the PAN number of each customer who is traveling abroad and for every foreign transfer of funds against clients is noticed. This way the government can collect data of outbound travelers.
The government claims this tax is not an additional tax to the clients, but the reality is that it increases the cost of travel and in the first stage of enquiry itself the clients postpone or cancel their plans for a holiday.
At this moment the entire travel and holiday industry seems to have collapsed and it will take at least two years to come back to normality, that too if there is no further worsening of the situation. So if we introduce this new tax the clients will be hesitant to book their holidays as they are already affected very badly due to economic slow down across the world.
The problem lies in the approach of the government. In India only 7.4% of the people are paying income taxes. Whoever is paying taxes is over taxed. But if you take other developing countries near to India like Vietnam (58%) and Philippines (28%) you will see a much higher percentage of citizens paying income tax. If our income tax payers increase by another 10%, we can reduce introduction of new taxes on existing tax payers or at least try not to increase the tax on a yearly basis. This will support more investment and future business opportunities will be very good and that will generate more employment.
This new TCS tax is another way of destroying an already paralyzed industry and it is the time all the tour operators stand together and make the government understand the adverse consequences of this tax.
