Service tax blow for on line travel players

Domestic hotel and tour aggregatorssuchasOYO Rooms, EaseMyTrip and MakeMyTripwereexpectingtax reliefintheBudgettobepresented on February 1. But the mood has turned sombre, with the finance ministry deciding to imposeservicetaxonwhatthey receivefromcustomersandnotjust thecommissionearnedfromhotels andothers.

Inaquietmove,the Central Board of Excise and Customs has amended the service taxrules to clarify this because there was ambiguity on the point.The changed rules came into effect on January 22.

The aggregators said their associations had taken up the matter with the ministry because this step would make the muncompetitive vis-à-vis international tour and travelplayerssuchasTravelocity, ExpediaandPriceline.com,which donotpayservicetaxinIndia.

The rates of service tax depend on whether aggregat or soffer tour packages,hotelrooms,hotelrooms withfood,etc.

The current practice is that most customers pay the entire amount to aggregators because the latter give discounts invarious forms.

Explaining the rules, Naveen Wadhwa of Taxmann said if a customerpaid~1,200toMakeMyTrip, thesumwouldbetaxed.Now,if there is a commission of Rs.300 toMakeMyTripand Rs.900goesto the hotel providing the room, aggregatorswantthetaxonRs.300.

However,ifacustomersplitup hisbillandpaid~900tothehotel directlyand~300totheaggregator, theaggregatorwouldpaythetaxon ~300,Wadhwasaid.But,mostoften thisisnotthepractice.Inthiscase, thehotelwillalsonotbetaxed becausethereisanexemptionfor roomrentlowerthan~1,000.

Theissuecameintofocuswhen MakeMyTripVice-President(Finance) MKPillaiwasarrestedforalleged taxevasionlastyear,andthematter is sub-judice intheSupremeCourt.
In the case of tour packages,there will be an a batement(proportiondeductedfrom thebill)of 40 percent,which means the service tax will be nine percent.If only hotel rooms are provided,there will be no abatement and the tax is 15 percent.If hotelrooms and food are provided,there will be an abatement of 60 percent in the food bill,which means the service tax will be six percent on food charges.

Nishant Pitti,chief executive officer and founder of Ease My Trip,said:“The buying cost for our customers has been raised by nine percent.We are passing this on to customers.Inthisenvironment wewillnotbecompetitivevis-à-visforeign onlineserviceproviders.” Pittisaidhotelsbilledaggregatorsthe entireamount,whichincludedtheservice tax.

He said customers would find foreign players more attractive than their Indian counter parts.

The Travel Agents Federation of India andTravel Agents Association of India have taken up the matter with the finance ministry,according to Pitti.

Business Standard New Delhi,27th January 2017

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