Indian Association of Tour Operators - IATO...Page 6 Indian Association of Tour Operators - IATO...

Indian Association of Tour Operators - IATO 8 February 2017

Bipin Sapra

Union Budget 2017-18

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Page 3 Indian Association of Tour Operators - IATO


► 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► R&D Cess proposed to be repealed. Consequently, the exemption from service tax on import of technology to the extent of R&D Cess paid has also been withdrawn.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



► 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

Abatement on Tour Operator Services

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Abatement on Tour Operator Services (Pre-Amendment)

► Entries under S. No. 11 of Notification No. 26/2012-ST provide for abatement on services by a tour operator

11

Services by a tour operator in

relation to,-

(i) a tour, only for the purpose

of arranging or booking

accommodation for any

person

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(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 invoice, bill or challan issued

indicates that it is towards the charges for

such accommodation.

(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.

(ii) tours other than (i) above 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.


Abatement on Tour Operator Services (Post-Amendment)

► 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

11 Services by a tour operator 60

(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.

(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. 04/2017-

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

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”


Impact of Abatement Notification - Snapshot

Particulars Existing provision Post amendment Change

Impact

Abated/ Effective Tax

rate

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

Cenvat credit on

Input services

Not available Available Increase in input tax

credit

Positive


Outbound Travel

Cenvat credit eligible on services procured – Low Impact

Expenses Cenvat Admissibility:

Pre- Amendment

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

Sightseeing


vendor


vendor

No Impact

Cab Rental No credit of taxes paid to foreign

vendor


vendor No Impact

Operational Expenses –

Rental, Telephone,

Manpower etc.

No credit of service tax paid on

domestic services procured

Credit of taxes paid on domestic

services available

Positive Impact

Mutli-fold increase in effective Service tax rate

Impact


Inbound Travel

Cenvat credit eligible on services procured – Medium Impact

Expenses Cenvat Admissibility:

Pre- Amendment

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

Sightseeing

No credit of taxes paid to domestic

vendor

Credit can be availed

Positive Impact

Cab Rental No Credit of tax paid on

procurement of cab services

No Credit of tax paid on

procurement of cab services No Impact

Operational Expenses –

Rental, Telephone,

Manpower etc.

No credit of service tax paid on

domestic services procured

Credit of taxes paid on domestic

services available

Positive Impact

Mutli-fold increase in effective Service tax rate

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

Ambiguous language of amendment could mean pure accommodation,

transportation and ticketing services could be subject to 15% rate

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

Goods and Services Tax (GST)

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GST Progress & Expected Timelines

Aug’16 Sep’16

CAB Approval

State Approval

June’16

Draft Law

Dec’16

GSTN Launch

Feb’17

Final Law

July’17

Go Live

• 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)

Recent Developments

• 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

Way Forward GST Progress

Consensus between Centre & State

State Compensation Framework

Agreement on the CAB

Agreement on taxing framework

GST – Design & System Structure

CAB voting and approval

GST Council & draft regulations

Drafting of GST Regulation

GST final rollout & implementation


Creditable taxes

Non creditable taxes 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

Local procurement of goods

Intra-state procurement of services

Inter-State procurement of goods

Inter-state procurement of services

ED, CST

Import of goods

Import of services

ED, VAT*

ST

Hotel

Accommodation

ST, Luxury tax

CGST & SGST

ST

CGST & SGST

Meals – Restaurant, conventions, events

ST, VAT

CGST & SGST

Miscellaneous services - laundry, gym, spa etc.

Renting of immovable property service

ST

CGST & SGST

Depends on end customer

Current business model : Current taxes vis-à-vis GST

BCD, SAD, CVD

BCD, IGST

ST (RCM)

IGST (RCM)

CGST, SGST

CGST, SGST

IGST

ST

IGST


and distribution channel How GST is applicable on hotels & Airline

Place of supply of services

Situation Place of supply of

services Location of

supplier Applicable tax Reason

Services in relation to lodging accommodation

by a hotel

Location of such immovable

property if in India

Location of such immovable property

CGST and SGST Place of supply and

location of supplier are in the same state

Services in relation to transport of Passenger

by Air/ Any point to point transportation

• Location of Service recipient in case of registered recipient

• Point of Embarkation

Location where services are

being performed

CGST and SGST/ IGST Depending on the POS

► 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

Example

Service provider Hotel T (e.g. Haryana)

Location of immovable property Hotel T (e.g. Haryana)

Customer registered in Delhi, stayed in Haryana


Key Issues and Suggestion under GST ..1/2

Topic Issue Suggestion

Presumptive Model should continue

under GST

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

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


Key Issues and Suggestion under GST ..2/2

Topic 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.

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