Indian Association Of Tour Operators - IATO
Indian Association of Tour Operators - IATO 8 February 2017 Bipin Sapra
1 Union Budget 2017-18
Union Budget 2017-18 Valuation Rules amended to clarify non-inclusion of value of land from the value of service portion in execution of works contract involving transfer of goods and land. R&D Cess proposed to be repealed. Consequently, the exemption from service tax on import of technology to the extent of R&D Cess paid has also been withdrawn. No specific amendment in relation to Tour and Travel Sector. Excise Duty on Tobacco and Tobacco products increased; Duties of customs modified for certain products; Requirement of documents at the time of self-assessment under Customs to be rationalized; Service Tax Excise Duty Customs Page 3 Indian Association of Tour Operators - IATO
Union Budget 2017-18 Authority of Advance Rulings for Customs, Central Excise and Service Tax will be merged with Income Tax; Banks and Financial Institutions including NBFCs to include services by way of extending deposits, loans or advances for Cenvat credit reversal. Time limit of 3 months from the date of receipt of application by Deputy/ Assistant Commissioner of Central Excise is prescribed for transfer of Cenvat credit in case of sale, merger etc. Others GST FM mentioned that government will reach out to industry from April 1, 2017 on educating them on GST. GST Page 4 Indian Association of Tour Operators - IATO
2 Abatement on Tour Operator Services
Abatement on Tour Operator Services (PreAmendment) Entries under S. No. 11 of Notification No. 26/2012-ST provide for abatement on services by a tour operator (i) CENVAT credit on inputs, capital goods and input services other than input services of a tour operator, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. Services by a tour operator in relation to,(i) a tour, only for the purpose of arranging or booking accommodation for any person 10 (iii) This exemption shall not apply in such cases where the invoice, bill or challan issued by the tour operator, in relation to a tour, includes only the service charges for arranging or booking accommodation for any person but does not include the cost of such accommodation. 11 (ii) tours other than (i) above (ii) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation. 30 (i) CENVAT credit on inputs, capital goods and input services other than input services of a tour operator, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii) The bill issued for this purpose indicates that it is inclusive of charges for such a tour and the amount charged in the bill is the gross amount charged for such a tour. Page 6 Indian Association of Tour Operators - IATO
Abatement on Tour Operator Services (PostAmendment) Entry under S. No. 11 of Notification No. 26/2012-ST as amended by Notification No. 04/2017-ST provide for abatement on services by a tour operator (i) CENVAT credit on inputs and capital goods used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. 11 Page 7 Services by a tour operator 60 Indian Association of Tour Operators - IATO (ii) The bill issued for this purpose indicates that it is inclusive of charges of accommodation and transportation required for such a tour and the amount charged in the bill is the gross amount charged for such a tour including the charges of accommodation and transportation required for such a tour.
Summary of Current Abatement on Tour Operator Services Abatement of 40% has been prescribed for tour operators subject to certain conditions vide Notification no. 04/2017ST dated 12 January 2017 effective from 22nd January 2017. The Notification substitutes Entry 11 (Notification No. 26/2012-ST) which deals with the abatement percentage in relation to tour operator services. The abatement is now confined to the cases where the tour charges are inclusive of accommodation and transportation i.e., packaged tours and service tax will be charged on 60% of the gross amount charged. “The bill issued for this purpose indicates that it is inclusive of charges of accommodation and transportation required for such a tour and the amount charged in the bill is the gross amount charged for such a tour including the charges of accommodation and transportation required for such a tour” The person availing the benefit of abatement cannot avail the CENVAT credit on inputs and capital goods. However, CENVAT credit on input services can be availed. “CENVAT credit on inputs and capital goods used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004” Page 8 Indian Association of Tour Operators - IATO
Impact of Abatement Notification Snapshot Particulars Abated/ Effective Tax rate Cenvat credit on Input services Page 9 Existing provision Post amendment Change 1.5% (90% - for only arranging or booking of accommodation) 9% (40% - for only arranging or booking of accommodation) 6 times increase in the taxable value of booking accommodation Negative 4.5% (70% - all other package tour) 9% (40% - all other package tour) Two fold increase in the taxable value of package tour Negative Not available Available Increase in input tax credit Positive Indian Association of Tour Operators - IATO Impact
Outbound Travel Mutli-fold increase in effective Service tax rate Expenses Impact Cenvat Admissibility: Pre- Amendment Cenvat credit eligible on services procured – Low Impact Cenvat Admissibility: Post- amendment Change/ Impact Ticketing Credit (JN Tax) passed onto Customer Credit (JN Tax) passed onto Customer No Impact Hotel Booking No credit of taxes paid to foreign vendor No credit of taxes paid to foreign vendor No Impact No credit of taxes paid to foreign vendor No credit of taxes paid to foreign vendor Cab Rental No credit of taxes paid to foreign vendor No credit of taxes paid to foreign vendor Operational Expenses – Rental, Telephone, Manpower etc. No credit of service tax paid on domestic services procured Credit of taxes paid on domestic services available Sightseeing Page 10 Indian Association of Tour Operators - IATO No Impact No Impact Positive Impact
Inbound Travel Mutli-fold increase in effective Service tax rate Expenses Impact Cenvat Admissibility: Pre- Amendment Cenvat credit eligible on services procured – Medium Impact Cenvat Admissibility: Post- amendment Change/ Impact Ticketing Credit (JN Tax) passed onto Customer Credit (JN Tax) passed onto Customer No Impact Hotel Booking No credit of taxes paid to domestic vendor Credit principally available. Procedural challenges under P2A Model. Medium Impact No credit of taxes paid to domestic vendor Credit can be availed Cab Rental No Credit of tax paid on procurement of cab services No Credit of tax paid on procurement of cab services Operational Expenses – Rental, Telephone, Manpower etc. No credit of service tax paid on domestic services procured Credit of taxes paid on domestic services available Sightseeing Page 11 Indian Association of Tour Operators - IATO Positive Impact No Impact Positive Impact
Areas of Concern Multi-fold increase in effective tax rate would further aggravate the burden of taxes on the Industry compared to its foreign competitors Page 12 Ambiguous language of amendment could mean pure accommodation, transportation and ticketing services could be subject to 15% rate Indian Association of Tour Operators - IATO Cenvat credit admissibility is a matter of concern under Principal to Agent model as the services, in effect, are received by end customer and ticket/ invoice is issued in its name
3 Goods and Services Tax (GST)
GST Progress & Expected Timelines GST Progress Way Forward Recent Developments Model GST Law published on 14 June 2016 for industry feedback in public domain Constitution Amendment Bill (CAB) passed by both Houses of Parliament in August 2016, ratified by majority states, received Presidential assent on 8 September 2016 Draft rules and formats for payment, registration, invoicing, returns and refund released Four-tier tax structure with rates 5%/ 12%/ 18%/ 28% finalized. Additional cess on demerit goods Portal for migration to GST Network launched Revised draft of Model Law released on 26 November 2016 Consensus on dual control (Ratios agreed) Industry feedback and representation on the model law to be taken into consideration Next Council meeting scheduled on February 18, 2017 for discussion on Model GST Law Allocation of Goods/ Services to respective rate slabs expected in March Enactment of CGST, SGST & IGST law, issue of relevant rules and notifications Drafting of GST Regulation GST Council & draft regulations CAB voting and approval GST – Design & System Structure Agreement on taxing framework Agreement on the CAB Draft Law CAB Approval State Approval GSTN Launch Final Law Go Live June’16 Aug’16 Sep’16 Dec’16 Feb’17 July’17 Page 14 GST final rollout & implementation Indian Association of Tour Operators - IATO State Compensation Framework Consensus between Centre & State
Current business model : Current taxes vis-à-vis GST ST, Luxury tax Import of goods Import of services CGST & SGST Accommodation ST (RCM) IGST (RCM) BCD, SAD, CVD BCD, IGST ST, VAT Local procurement of goods CGST & SGST ED, VAT* CGST, SGST ST ST Intra-state procurement of services Hotel CGST, SGST CGST & SGST ST ED, CST Renting of immovable property service IGST IGST ST CGST & SGST Inter-State Inter-state procurement procurement of of goods services Note: Entry tax may also be leviable on movement of goods from one local area to another under current regime in certain States * Credit is admissible only in case of food Page 15 Meals – Restaurant, conventions, events Indian Association of Tour Operators - IATO Miscellaneous services - laundry, gym, spa etc. Creditable taxes Non creditable taxes Depends on end customer
How GST is applicable and distribution channel on hotels & Airline Place of supply of services Situation Services in relation to lodging accommodation by a hotel Services in relation to transport of Passenger by Air/ Any point to point transportation Place of supply of services Location of supplier Applicable tax Reason Location of such immovable property if in India Location of Service recipient in case of registered recipient Point of Embarkation Location of such immovable property CGST and SGST Place of supply and location of supplier are in the same state Location where services are being performed CGST and SGST/ IGST Depending on the POS Example Service provider Hotel T (e.g. Haryana) Location of immovable property Hotel T (e.g. Haryana) Customer registered in Delhi, stayed in Haryana CGST and SGST to be levied on providing accommodation/food in the state of Haryana Customer can avail the credit only if he is registered in Haryana Invoice to contain GSTIN of the hotel in Haryana state Advocacy -Place of supply of services by way of accommodation/food by a hotel to a registered person, shall be the location of such person Page 16 Indian Association of Tour Operators - IATO
Key Issues and Suggestion under GST Topic Presumptive Model should continue under GST .1/2 Issue Suggestion Presumptive model of taxation has not been provided under Model GST Law Option to discharge GST under the Presumptive Model should continue The value on which presumptive rate would be applied should only be the ‘Base Fare’ declared by the Airlines and should not include any surcharge/ YQ Considering the gross earning at around 5% we suggest that the rate of tax for both Domestic & International as 1% of the Basic Fare Tax Collection at source for online booking Operators Page 17 Compulsory TCS for all online operators, increased compliance, lower margins Tourism industry should not be asked to do TCS for both airline booking and hotel bookings Indian Association of Tour Operators - IATO
Key Issues and Suggestion under GST Topic .2/2 Issue Suggestion Rationalization of rates in the industry Given that the present effective rate of tax on tour operator/ rent a cab / Hotel booking/ and other services vary from 1.5% to 15%, there is a need to align the rates to reduce the classification issues The rate for Hotel, point to point travel services and tour operator services should be aligned and kept at preferably 5% but maximum 12% with Credit Outbound Tours should not attract tax under the GST regime Outbound tours are subject to tax in India. Further, credit of taxes paid outside India is not eligible leading to double taxation The place of supply for outbound tour services should be deemed to be outside India GST should be charged on ‘Margins’ for tour operators wherever there is a Principal to Agent Model The Current abatement notification talks about taxing tour operators on the gross revenue minus an abatement, credits allowed on services. Wherever there is a P to A arrangement, the tour operator only gets the margins and the principal service is directly billed to the customer If a tax on presumptive basis, like in case of ATA can be worked out basis the margins, a proposal can be made out. Alternatively, the value of taxable service can be the gross commission earner for all components which make up the tour and principal value of services provided. Page 18 Indian Association of Tour Operators - IATO
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Page 8 Indian Association of Tour Operators - IATO Summary of Current Abatement on Tour Operator Services Abatement of 40% has been prescribed for tour operators subject to certain conditions vide Notification no. 04/2017- ST dated 12 January 2017 effective from 22nd January 2017. The Notification substitutes Entry 11 (Notification No. 26/2012-ST) which deals with the abatement percentage in
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