Union Budget 2015-16 India Suggestion : What Govt should do to boost India’s travel industry?

This time the travel industry is hopeful of the Narendra Modi government and is anticipating greater support from the Centre in terms of policies. Swaminathan Vedaranyam, CEO of Via.com, an online travel booking site, said, “As far as the travel industry is concerned, I think there is an urgent need for well-defined policies and clear commitments to ensure that all cultural heritage points are given more attention with improved infrastructural facilities”.

Taxation: Killing the golden goose?

Players have often asserted that multiplicity of taxes coupled with a complex taxation policy have marred the travel agents in the country. “Travel as a sector is considerably dependent on foreign transactions and can contribute substantially to the nation’s foreign exchange reserves. The taxation policy for the sector is especially nuanced and has several facets that need to be reviewed,” says Rakshit Desai, managing director India, FCm Travel Solutions and Flight Shop.

He added, “By extending the measures introduced in the previous budget, we look forward to some fundamental changes to simplify tax structures. A case in point is the CENVAT credit for services benefiting from an abated tax rate. Currently applicable to rent-a-cab services and tour operators, this needs to be expanded to cover the complete gamut of travel related services covered by abatement to limit taxation to value addition.”

It should be noted that most players have often complained that multiplicity of taxes in India gives an edge to other Southeast Asian countries such as Singapore, Indonesia, Thailand and Malaysia.

Is it an unfair treatment?

Subhash Goyal, chairman of STIC Travel Group and president of Indian Association of Tour Operators (IATO), said, the industry may get some relief on implementation of the Goods & Services Tax (GST).

“The problem is that tourism is not treated at par with other export-based sectors. While sectors that export goods are exempted from service tax, the tourism industry, which is a part of service sector, is made to pay the service tax. We want the government to treat us as other foreign currency earner,” averred Goyal.

Desai of FCm Travel added that a slash in service tax will be a much needed relief to foster the sector’s growth. “This would be especially beneficial for travel operators in case of services rendered to foreign offices of global and multi-national companies, where travel originates outside India and payments are received in foreign exchange,” he noted.

Revitalisation of associate industries

India has a large base of air passengers. However, complex tax structure and lack of infrastructure is not allowing the airline companies to harness this resource to the fullest.

Industry players have asked the government must focus on reducing the taxes on aviation turbine fuel (ATF) as it has made airfare in India expensive, which has adversely impacted the sector.

According to Goyal, since the tax paid on ATF varies in different states, the implementation of GST becomes more imperative. “The government should restrict the tax levied on ATF to a maximum of 5% as anything more than that can make air travel in India expensive, thus benefiting other Southeast Asian destination such as Thailand, Singapore, Indonesia and Malaysia, which are more cost-competitive,” he pointed out.

Also, the lack of infrastructure has adversely impacted the growth of the aviation industry. Vedaranyam said, “There is a recent spurt in domestic travel as well as a higher influx of foreign tourists in India and with dedicated upkeep of the tourist hotspots, we can ensure higher growth for the travel industry. Additionally, I wish that there is an allocation towards revitalising all unused airports in tier II and III cities as these geographies hold immense potential today. There should also be a rationalisation of air travel taxes for competitive pricing to boost travel and tourism”.

In terms of the availability of adequate rooms, the travel industry expects the government to address the issue of shortage of room inventory in the major tourist destinations. DS Rawat, general secretary of ASSOCHAM, said that the government should focus on finding ways to increase the number of budget hotels for more room inventory.

“The government should accord ‘Infrastructure’ status for hotel projects with minimum 50-100 rooms (from current cost-based criteria of Rs 200 crore) and reduce availability constraints by expanding mid-segment hotels of 2-3 star categories,” suggested Rawat.

Innovation: the key to success?

To ward off the fear of cut-throat competition, Rawat recommends “Launch projects to create 50 tourist circuits around themes of Heritage, Culture, Himalayas, Desert, North East Region, Coastal, Sports and Films. Create a Hindu Circuit akin to Buddhist Circuit; explore synergy with North East, SAARC and South East Asian countries which have a strong ‘India’ connect”.

At present, India does not even contribute 1% to the international travel market. Nevertheless, it can be turned around as the country as a tourism destination has a huge potential to woo both foreign and domestic travellers.


Union Budget 2015-16 India Predictions : Up weightage to FMCG, pharma; like TVS, City Union: Ambit

Investors should avoid positioning their portfolio around events like the Budget, because “there is enough money to be made” from stocks and sectors by taking a longer term view, says Saurabh Mukherjea, CEO, Institutional Equities, Ambit Capital.

In an interview to CNBC-TV18, Mukherjea says there will be some degree of optimism in the market ahead of the Union Budget. He recommends investors to increase weightage to defensive sectors like FMCG, pharma and IT.

Mukherjea says he has trimmed exposure to some of the large cap cyclicals because prices have run up quite a bit.
He continues to maintain a bullish view on small private banks, and his top bets include DCB and City Union Bank.

He rates Punjab National Bank as the “highest conviction sell”, and is bullish on TVS Motor, citing it as a natural play on economic recovery.


Union Budget 2015-16 India Suggestion : FM to set limit for taxing indirect share transfer by MNCs

Government is likely to define in the forthcoming budget the term ‘substantial value’ to tax MNCs for selling Indian operations by fixing 50 percent of their total asset base as the threshold.

Seeking to bring about clarity in taxation of indirect transfer of assets by MNCs, Finance Minister Arun Jaitley is likely to introduce the threshold to establish whether a overseas company has substantial business interest in India. Following the retrospective amendment to Income Tax Act in the wake of the Vodafone-Hutchison tax controversy, a company incorporated overseas is deemed to be situated in India only if it derives its “value substantially” from assets located within this country.

As the term “value substantially” is not defined, it has led to a significant subjectivity, uncertainty and litigation, tax experts said. The minister is likely to clarify the provisions in the Budget as it has become a sore point for foreign investors, they added. According to sources, the Finance Ministry is looking at introducing the threshold — 50 per cent of MNCs’ total asset base in India — for taxing indirect transfer of assets, which is in line with the recommendations of the Shome Committee.

The Parthasarathi Shome Committee, which has looked into the issue, has suggested that the government should introduce a 50 per cent threshold to bring about clarity with regard to taxation of indirect transfer of shares. The revised Direct Taxes Code (DTC) 2013 has provided for a 20 per cent as the threshold for triggering tax on indirect transfers of assets. “One of the key concerns of the foreign investors in respect of indirect transfer of shares is the lack of clarity as to what constitutes substantial value of assets situated in India.

Therefore, it is critical that government clarifies its position in this year’s Budget,” KPMG (India) Partner Tax Vikas Vasal said. The uncertainty over threshold has impacted the global acquisitions and group restructuring transactions (involving merger, demergers, business sale etc) wherein the shares of Indian company are also involved, said Gokul Chaudhri Leader (Direct Tax) BMR & Associates. “The investors are fearful of the prolonged litigation that could follow in view of multiple interpretations,” he added.

© 2008-17. All Rights Reserved. Epic Research Pvt. Ltd.