IATOPresentation2017.pdf

Indian Association of Tour
Operators - IATO
8 February 2017
Bipin Sapra

Indian Association of Tour Operators - IATO
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► R&D Cess proposed to be repealed.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of technology to the extent of R&D Cess paid has also been withdrawn.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

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

Abatement on
Tour Operator
Services
2

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
10
(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
Post- amendment
Change/ Impact
Ticketing
Credit (JN Tax) passed onto
Customer
Customer
No Impact
Hotel Booking
No credit of taxes paid to foreign
vendor
vendor
No Impact
Sightseeing
vendor
vendor No Impact
Cab Rental
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
Pre- Amendment
Post- amendment
Change/ Impact
Ticketing
Customer
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)
3

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.

Ernst & Young LLP
EY | Assurance | Tax | Transactions | Advisory
About EY
EY is a global leader in assurance, tax, transaction
and advisory services. The insights and quality
services we deliver help build trust and confidence
in the capital markets and in economies the world
over. We develop outstanding leaders who team to
deliver on our promises to all of our stakeholders.
In so doing, we play a critical role in building a
better working world for our people, for our clients
and for our communities.
EY refers to the global organization, and may refer
to one or more, of the member firms of Ernst &
Young Global Limited, each of which is a separate
legal entity. Ernst & Young Global Limited, a UK
company limited by guarantee, does not provide
services to clients. For more information about our
organization, please visit ey.com.
Ernst & Young LLP is one of the Indian client serving member firms of EYGM
Limited. For more information about our organization, please visit
www.ey.com/in.
Ernst & Young LLP is a Limited Liability Partnership, registered under the
Limited Liability Partnership Act, 2008 in India, having its registered office at
22 Camac Street, 3rd Floor, Block C, Kolkata – 700016
© 2017 Ernst & Young LLP. Published in India.
All Rights Reserved.
This publication contains information in summary form and is therefore
intended for general guidance only. It is not intended to be a substitute for
detailed research or the exercise of professional judgment. Neither EYGM
Limited nor any other member of the global Ernst & Young organization can
accept any responsibility for loss occasioned to any person acting or refraining
from action as a result of any material in this publication. On any specific
matter, reference should be made to the appropriate advisor.
EY refers to the global organization, and/or one or
more of the independent member firms of Ernst &
Young Global Limited
“This Presentation provides certain general information existing as at
the time of production. This Presentation does not purport to identify
all the issues or developments pursuant to the transaction.
Accordingly, this presentation should neither be regarded as
comprehensive nor sufficient for the purposes of decision-making.
Ernst & Young does not undertake any legal liability for any of the
contents in this presentation. The information provided is not, nor is
it intended to be an advice on any matter and should not be relied on
as such. Professional advice should be sought before taking action
on any of the information contained in it. Without prior permission of
Ernst & Young, this document may not be quoted in whole or in part
or otherwise referred to in any documents.”
Thank you

IATOPresentation2017.pdf

Recommended

Recommended

More Related Content

Similar to IATOPresentation2017.pdf

Similar to IATOPresentation2017.pdf (20)

Recently uploaded

Recently uploaded (20)

IATOPresentation2017.pdf