India mulls tourism tax cuts

NEW DELHI, 15 January 2018: India is plans to cut taxes on travel and tourism as part of the Union Budget that will offer incentives for an industry estimated to earn USD210-billion sector for the national economy, government sources told Thomson Reuters.

The cut in taxes should boost economic growth and create more jobs, while providing a boost for domestic tourism.

The world’s second most populous nation is estimated to be home to 250 million middle-class Indians, who are the target of a campaign to get them exploring their own country through tax incentives .

With scores of destinations introduced on airline routes last year, air travel is surging.

The tourism sector grew over 10 % in the six months ending September, 2017, compared to nearly 8% when compared to the same period in 2016.

Reuters quoted an industry report that claimed tourism employs 40 million people in India and could add 10 million jobs in a decade.

“We’ll announce measures in the budget to promote investment in the tourism sector,” a top finance ministry official told Reuters, adding that Finance Minister, Arun Jaitley, favours lowering a 28% tax on hotel tariffs, and offering incentives to attract private investments.

While the target is to encourage Indians to travel in their own country, the tax reduction on hotel tariffs would also benefit international travellers that are paying tax on hotel bookings that are some of the highest in Asia.

If the moves come about, companies expected to benefit include airlines like IndiGo, owned by InterGlobe Aviation, and Jet Airways and hotel operators such as Indian Hotels, that owns the Taj Mahal chain and EIH Ltd that operates the Oberoi hotels in India.

Tour operators including Cox & Kings and Thomas Cook are also likely to gain.

In India, tourists, on average, pay a 30% tax on hotel rooms and travel compared with less than 10% in Singapore, Thailand and Indonesia, said Pronab Sarkar, president of the Indian Association of Tour Operators (IATO).

Another government official said the Budget was likely to “significantly” raise allocations for tourism infrastructure and raise income tax exemptions on investments in new hotels.

A third official, who is aware of the finance ministry’s pre-Budget consultations with industry groups, said Jaitley was expected to lower income tax on corporate profit, offer tax incentives on hotel construction, allocate more funds for new tourist trains and building roads to tourist destinations.

The government will offer incentives to more regional airlines this year to cover new, under-served airports, the official added.

All three officials, who spoke on condition of anonymity, declined to provide numbers or share further details.

The country needs about 200,000 new hotel rooms, Tourism Minister K J Alphons told Parliament last week.

Prime Minister Narendra Modi has said developing tourism, particularly in the remote northeast states, is one of his top priorities.

One major driver of the domestic tourism boom has been the launch in 2017 of five regional budget airlines on over 100 routes, which are given incentives by the government to offer cut-price flights to  remote areas, encouraging thousands of families to explore flying for the first time.

Domestic airlines carried 10.6 million passengers in the first eleven months of 2017,  up 17% from 2016, encouraging some established players like SpiceJet, Jet Airways and Vistara to start flights to new destinations.

Tour operators said double-digit hikes in urban wages, coupled with an over 25% rise in the benchmark Sensex index last year, have contributed to the domestic tourism boom.

At the same time over 9 million foreigners visited India in the first 11 months of 2017, up 15.6% from a year ago.

(Source: Thomson Reuters)