With the Union Budget 2023-24 set to be presented by Finance Minister Nirmala Sitharaman on February 1, 2023, travel, tourism and hospitality sectors expect a lot of sops for the industry. Their demands include tax relaxations & benefits, infrastructure status and incentives amongst others.
T3 collates here the industry’s expectations from the Budget 2023-24.
SP Jain, CMD, Pride Hotels
“Extend Timeline for Export Obligation under EPCG Scheme
The EPCG scheme allows the import of capital goods including spares at zero duty subject to an export obligation of six times of duty saved on capital goods imported under the scheme, to be fulfilled in six years. Foreign Exchange earnings of the hotel industry have been impacted due to the unprecedented pandemic and restrictions on travel by many countries. This is leading to non-fulfillment of export obligations for pre-covid capital goods imports and consequent penalties on the hospitality industry. In view of the volatile economic environment created due to the Covid Pandemic, the timeline for meeting export obligations should be extended by at least 6 (Six) years for all the EPCG licenses which have an EO period falling between February 2020 onwards.
Continuation of EPCG Scheme, service export benefits and grant export status to the hospitality industry
The EPCG Scheme allows the import of capital goods for pre-production, production, and post-production at zero customs duty and subject to fulfillment of specific export obligations equivalent to 6 times of duties and taxes saved on capital goods to be fulfilled in 6 years from the date of issue of authorization. This scheme has helped the hospitality sector in India immensely to emerge as a strong player in the global tourism market, by procuring equipment as per international standards and quality. However, the capability of the domestic market to cater to the specific requirements of the hospitality sector is in its nascent stage in comparison to the requirements of the hospitality sector, where the clientele is largely from the global market which is highly competitive. Therefore, it is imperative to continue the EPCG Scheme to enable the hospitality sector to remain competitive in a global market scenario, for some more years. Granting Export Status to the hospitality Industry with tax incentives and benefits would enable the sector to be more competitive and help the sector to jumpstart its growth to the next orbit.
Waiver of secondary condition with regard to average Foreign Exchange
Earnings under the EPCG scheme retrospectively from FY 2007-08 onwards From 2004-2007, the Hospitality industry enjoyed its golden years in terms of revenue performance while earning substantial foreign exchange but ever since then its revival to that past glory looks very remote. It was during this time that the service industry was exempted from maintaining Annual Average Performance conditions vide Para 5.7.6 of Chapter 5 of Exim Policy 2002-07. However, in the year 2007-08, DGFT in the new Exim Policy introduced an additional condition which not only meant that over and above the primary condition, the industry will have to earn 6-8 times the FEE within the respective block period and also saddled with a secondary condition of maintaining a 3 years average past performance continuously over & above the specific EO and the average has to be maintained for the entire block of 8/6 years till the redemption of license.
In this regard, our two requests are given below: –
a) Grant Relaxation in average export obligation by adjusting the preceding 3 years’ annual average performance for all years commencing from the financial year 2008/09.
b) Allow offsetting any shortfall in the average EO in any year by using the excess export done above export obligation for the fulfillment of an EPCG license.
Uniform GST @ 12 % on all Hotels
G.S.T. rates for hospitality in India are one of the highest in the world. This makes both domestic and inbound tourism in India very expensive. India is facing tough competition from neighboring destinations especially due to the higher rate of GST in India and other factors which make the total tourism package expensive to India.
The system of GST shifting to different slabs in the same hotel on different dates – under/over 7500 room rate – creates compliance issues. It also spills over to F & B. Therefore, we suggest introducing one flat GST slab @ 12 % at all times to all hotels in the country.
Treat the payments made by foreigners in rupees in hotels as foreign exchange earned for the purpose of EPCG scheme
Foreigners coming to India and staying and spending in hotels should be deemed as foreign exchange earned by hotels for the purpose of the EPCG Scheme. It should be treated at par with merchandise exports of hotels & resorts to promote exports of hospitality services. To enable investments into developing more global markets, it is requested to declare foreign exchange & deemed foreign exchange earnings from hotels & tourism as export earnings.
Additionally, it is roughly estimated that each foreign tourist moves across Indian states, stay at hotels & resorts, and go through other experiences, and spends their foreign currency or their converted foreign exchange. All such services of hotels & resorts which accept payment from such foreign tourists should be deemed as exports too.”
Rajesh Magow, Co-Founder & Group CEO, MakeMyTrip
“The Indian travel and tourism industry has shown great resilience and bounced back from the brunt faced during the times of the pandemic. Domestic leisure travel has recovered well past pre-pandemic levels, though the long-haul international travel still lags. At this crucial juncture, the industry needs support from the government to ensure that it continues to be the one of the foremost employers in the country.
Differential regulations impacting India-based travel companies and start-ups
The current taxes and compliance structure has created an imbalance as they affect Online Travel Agencies (OTAs) located and operating a permanent establishment in India. For instance, a direct tax provision mandates the collection of 5% TCS with PAN and 10% TCS without PAN from the customer of an overseas travel package from any online e-commerce entity. This allows foreign-based OTAs to offer lower costs to Indian citizens because of the non-applicability of GST or direct taxes. No KYC process by foreign entities adds to the attraction for a section of Indian travelers. We urge the government to review the differential regulation as this gives unfair advantage to foreign based entities thereby impacting India-based companies as well as leads to a loss of tax revenue for the government.
Offer level playing field for offline and online bookings for bus and hotel bookings
With India’s focus on becoming a digital economy, the disparity between offline and online bookings should be done away with to motivate all travellers to embrace digital India at the grass-root level. Currently, the customer pays a 5% GST charge when booking a non-AC bus through an online platform. This charge is zero for an offline booking. The disparity is similar in the case of an online booking of unregistered hotels and homestays.
Requirement for obtaining registration all states/UTs should be done away with
India’s rank in ease of doing business as improved significantly, and in the same spirit, the requirement for an OTA to register in all states/UTs should be reconsidered. The current GST law requires OTAs to have a physical presence in all states and union territories. It means having 36 offices, GST registrations, and tax-collection-at-source (TCS) to offer services across India. In addition, the OTAs are supposed to file 100-plus returns a month.
Infrastructure status for the sector
This is a long-standing demand of the sector. Granting this much-awaited request of the travel & tourism sector will help in easier access to institutional credit; will increase India’s tourism sector competitiveness in the international arena and create a long-term path for the sustainable growth of the sector.
Exports Status for Tourism Earnings
Travel contributes significantly to the services sector in India and generates employment for millions. To recognise this contribution to society and the economy, we suggest that tourism exports be treated at par with other exports and services and such transactions may be zero rated for GST without stopping the flow of input credits.”
Nishant Pitti, CEO and Co-founder, EaseMyTrip
“As the pandemic becomes endemic, it is important for both the central and state governments to work in tandem to facilitate this sector and support it. For starters, the government could include travel and tourism in the concurrent list to provide it with industry status, which will help in making it more structured.
A greater focus on the industry’s revival is required, which can be done by implementing an e-visa fee waiver for tourist visas, and domestic income tax travel credit for Indian citizens and Indian companies. The Emergency Credit Line Guarantee Scheme (ECLGS) should also be extended to tourism and hospitality. In addition to this, we are also hoping that with the upcoming budget, the government will strive to increase the disposable income of the middle classes to aid the rise of discretionary spending. This can be done by taking concrete steps should be taken to improve the cash flows, enable access to easy credit, and reduce the income tax rates and GST tax rates.”
Jaison Chacko, Secretary General, Federation of Hotel & Restaurant Associations of India (FHRAI)
“The industry needs Infrastructure Status to be accorded by the Government of India to enable the hospitality sector to avail long-term funds under the RBI Infrastructure lending norm criteria. This will enhance quality accommodation supply and therefore, stimulate higher global and domestic travel demand. Although industry status has been accorded to tourism and hospitality by many State Governments, the incentives and privileges associated with an industry have not been conferred to the sector. Industry status will help in setting up a corpus fund to incentivize all States to align policies and set off any losses that may occur. Tourism and hospitality should be placed on the concurrent list of the Constitution to make tourism into a national agenda. It will ensure better coordination between the Centre and the State for fund allocation and implementation of projects and programs aimed for the holistic development of the tourism sector in the country.”
Pradeep Shetty, President, Hotel and Restaurant Association of Western India (HRAWI)
“We expect the Union Budget to include relaxations in Section 115JB – Minimum Alternate Tax (MAT) waiver for two years from April 2023 to March 2025. This will help reduce the tax burden and provide marginal relief to the hospitality sector. The Budget should extend investment-linked benefits under Section 35 AD for brownfield hospitality projects to the on-going capex of hotels and resorts. This shall immensely benefit high-quality brownfield capex and capacity expansion, accelerating investment and employment in the sector. The Budget should modify the Leave Travel Allowance (LTA) rules to include the amount spent on hotel stays to be considered as LTA expense and payments by foreigners in Rupees at hotels should be as foreign exchange earned for the purpose of EPCG scheme. The ECLGS loan term should be increased for at least 10 years or as per the loan repayment period of the principal loan, whichever is longer. The industry needs a waiver of secondary condition with regard to average Foreign Exchange Earnings under EPCG scheme retrospectively from FY 2007-08 onwards as well as would require the continuation of EPCG Scheme, service export benefits and export status. Our long-standing demands has been for Infrastructure Status to the hospitality industry under the RBI Infrastructure lending norm and granting Industry status and allied benefits to the hospitality industry. Tourism and Hospitality should be placed on the concurrent list of the Constitution for effective legislation to make tourism into a national agenda. Lastly, the industry requires uniform GST at 12 per cent on all hotels across the country.”
Kush Kapoor, CEO, Roseate Hotels & Resorts
“A full-blown infrastructure status for the hotel sector and further rationalisation of the Goods and Services Tax (GST) and a Central single window clearance for hotel projects are some of the major expectations from the Budget 2023.
The GST Council in 2019 green-lighted reduction in the rates on the hotel tariffs. The rooms with a tariff of Rs 7,500 and above attract a GST of 18 percent instead of 28 percent. The rooms with tariffs between Rs 1,001 and Rs 7, 500 are taxed at 12 percent.
The 18 percent GST is still high in this competitive scenario, it would have been better if it was revised to 12 percent for the rooms with a tariff of Rs 7,500 and above. The industry has been clamoring for infrastructure status for decades. The status will enable hotel projects to have easy access to cheaper debt that is at par with projects in other industries. A reduced capital cost will have a bearing on both the timely completion of projects and their overall financial health.
Lastly, in a bid to fast-track investments, it is recommended to reduce the total number of licenses required to establish a centralized approval system for most common approvals, licenses & permits on an E- approvals basis. These should be granted within a pre-defined time frame or deemed to be approved.”
Vishal Suri, Managing Director, SOTC Travel Limited
“We seek the Government’s support for economic relief in the upcoming Union Budget with lower taxes and incentives to help boost the road to recovery. We anticipate rationalization of tax structure via reduced GST, TDS rates, and TCS on LRS remittances; also, clarification on the applicability of collection by e-commerce operators under section 194O, this will help reduce complexities and enable the industry to focus and accelerate businesses further.
Further, corporates should be offered with incentives for organizing meetings and conferences in India through partial or full tax exemptions on the expenses incurred, this will help boost domestic travel and tourism. We seek assistance from the Government in enhancing the structural transformation that is needed to build a stronger, more sustainable and resilient tourism industry. We need to focus on the tourism sector as a sustainable engine for economic growth and development.”
Sunil Gupta, MD & CEO, Avis India
“During Covid, the travel and tourism sector was among the worst affected and is still far from pre-Covid levels. It is also a big generator of employment and in the current context of high unemployment, supporting this sector will pay rich dividends to the economy. The upcoming Union Budget offers the government the perfect opportunity to do so by formulating provisions that aid the sector to recover from the losses it has borne during the last couple of years. As a travel-oriented business, we expect higher budgetary allocation to infrastructure to promote travel.
We are also looking forward to the government granting industry status to the travel and tourism sector, which will help in the regularization of policies and processes and better access to finance. Measures like rationalization of taxes, reduction in indirect taxes and related exemptions could also benefit the sector to a great extent by creating a favorable environment for people to spend their disposable income on travel. The introduction of soft loans with lucrative terms can also act as a stimulant for the sector, which is still on its journey to post-pandemic revival.”
Mahesh Iyer – Executive Director & Chief Executive Officer, Thomas Cook (India) Limited
“The Travel & Tourism sector is a significant contributor to India’s GDP and the planned National Tourism Policy intends to target GDP contribution of $1 trillion by 2047; $150 billion in 2024.
Our key expectations for the upcoming Union Budget would include: lowering of TCS for outbound travel and LRS remittances; LTA expansion to once a year against twice in 4 years to boost domestic tourism; reduction of TDS rate as this could adversely impact corporate travel spends; exemption of travel agents from section 53 of GST as it forms a major compliance and working capital challenge for travel agents (there is no ultimate loss of revenue to the Government, given that airlines already discharge tax on their sale).
Clarification on applicability of Section 194O on E-commerce would be of value – as the current definition covers facilities for ease of booking, even if the transaction is done offline (such facilities should be kept outside the levy of TDS for Travel companies). Additionally, enhanced coordination between banks and CIBIL for timely and accurate information to enable quicker ECLGS loan disbursements.
From an inbound perspective: an alternate mechanism for SEIS to be developed for revival of the Inbound Tourism sector; granting of exporter status to Inbound Tourism; waiver of E-visa fees for 2023-24 aimed at promoting inbound tourism and thereby increasing GDP.
Also, deeper marketing investments as part of the year-long G-20 summit initiatives to promote tourism – both inbound and domestic. Further, a collaborative approach that co-opts us wherever there are new amendments and technical/interpretation matters.”
Manish Rathi, Co-founder and CEO, Intrcity
“Inter-city mobility is a key enabler of the Indian economy. Specifically, surface transport is the highest contributor in the segment with over 50 million individuals travel intercity every day. Road travel time between metros in Tier I and Tier II needs to be reduced in order to promote more essential travel and offer alternate modes which are comparable with travel time on trains. There are still certain locations with weak connectivity that demand the government’s attention. Concentrating on building and improving national highways will cut distance and travel time while increasing connectivity.
We expect the Government of India to dedicate more attention on targeted measures to promote shared mobility for long travel routes. Our expectation from the government would be to create a policy boost towards creation of multiple boarding points in every city that are safe, hygienic, and well-lit. This way, the boarding process would become more convenient for women and senior citizens.
We certainly welcome the audacious ‘One India, One Permit’ initiative, now it needs to push to ensure that all state governments accept it. This will serve as a solution to the myriad issues facing the country’s road transport sector, improving road safety and facilitating transportation movement. Given the current environmental situation, we sincerely hope that the government will take steps to promote green fuel, which will improve efficiency and reduce costs.”
Rajeev Taneja, Founder of Global Care
“The Medical Value Tourism sector has suffered a series of setbacks in the last two years and our expectations as an industry from the budget are to support the sector’s recovery. Facilities including visa approvals and ease of access, a repository for accessing information and infrastructure development in not just the metro cities but pan India as well for pre and post-treatment care are a few important steps that need to be accommodated in the budget. These will help boost investment and incentivize the industry, particularly in Tier 2 cities across the country.
We are hopeful that the budget will extend valuable opportunities to aid faster growth for the industry. As the sector contributes significantly to the influx of the forex and contributes greatly to the economy and employment, it needs to be a priority in the budget as well.
Currently, India is getting to position itself as a global wellness destination and we need to make sure that the facilities and treatments are at par with the international standard and a favorable budget will help with the same.”
Nandivardhan Jain, CEO & Founder, Noesis Capital Advisors
“One of the biggest hurdles to growth in the hospitality sector is the cost of capital and a relatively short duration of debt tenure. As this is a high Capex asset class, it has a longer gestation period similar to infrastructure projects like railway, road, metro and aviation. Infrastructure status to the hospitality industry is a long-standing demand of the industry. We hope the finance minister will extend this status to the hospitality industry in this union budget.
The hotel room inventory in India is significantly lower than in other peer nations. With the Prime Minister charting the path for India to be a developed country by 2047 it has a comparatively low room-to-people ratio, i.e. We have only 0.7 room spaces per 1000 people whereas it is 10 in the United Kingdom and 20 in the United States. As the income levels are rising, the growth in our country revolves around its consumption story. The hospitality industry is one of the major contributors, hence it is imperative to increase the room supply, infrastructure status is the only long-term solution.”
Ritesh Agarwal, Founder and Group CEO, OYO
“One key ask from the government would be to grant industry status to tourism and accordingly incentivize all states upon implementing tourism-friendly policies. In tandem with this, we would urge the government to allocate budget for setting up homestays in the lesser explored and offbeat destinations across India, for promotion of rural and agriculture tourism. Our homestay projects in Ektanagar and J&K, in collaboration with respective state governments, have yielded great results and helped in creating a stable source of income for the people residing in these villages. Implementing such initiatives on a national level will create employment avenues for thousands and provide a much-needed boost to the economy. The government can set up a special fund to help farmers in building homestays. This would not only help the farmers with a second source of income, but also give the travelers a taste of real India and the most authentic experiences we have to offer.
We would also urge the government to reconsider 12% GST being currently levied on room tariff below INR 1000 per night. With the current geo-political tensions and inflationary pressures, travel cost has risen. The current rates make it difficult for people to find an affordable stay when travelling. This also negatively impacts the earnings of small hoteliers. We recommend exemption of budget hotels from GST for the larger good of hospitality and tourism sector. Under the RBI infrastructure lending norm criteria, hotels built with INR 200 crore investment get the infrastructure status. We urge the government to bring down the same to INR 10 crore to give a boost to budget segment hotels. This will help hotels avail term loans at lower rates of interest and also benefit from longer repayment periods.”
