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Tourism Taxation in the Hotel industry


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BBA internship project on Tourism Taxation by Pianca Gracias & Trisha George

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Tourism Taxation in the Hotel industry

  2. 2. 1 ACKNOWLEDGEMENT We would like to express our sincere thanks and gratitude to the following people who have co- operated immensely for the completion of our project. The staff of Golden Palms Hotel & Spa for teaching us, sharing their valuable information and making our internship a great learning experience.Mr.RohanAudi (finance manager) for accepting us as interns.Ms.YvonnePereira (HR manager) for being our external guide.Mr.Ganesh (finance assistant) for training and sharing his valuable knowledge and Mr.PolicarpoD`cruz (IT manager) for helping us whole heartedly in our internship and project. We thank Ms. SnehalJadhav, the coordinator of the BBA department and also our project guide, for her time, effort and support. We would also like to thank her for providing help in finding information and advising us about the same whenever needed. Last but not the least we would like to thank our parents and friends for providing us motivation, inspiration and moral support while preparing our project.
  3. 3. 2 DECLARATION We hereby declare that the project report entitled “STUDY ON TOURISM TAXATION AND ITS EFFECTS ON THE INDIAN HOTEL INDUSTRY AND THE ECONOMY” is an original work carried out under the guidance of MISS SNEHAL JADHAV. The report submitted is a bonafide work of our own efforts and has not been submitted to any institute or published before. Names Roll No Signature 1. Trisha George 13906 2. PiancaGracias 13907
  4. 4. 3 TEACHER`S CERTIFICATE I certify that this project report is a record of work done by the students and has been prepared by them under my supervision during the academic year 2014-15.To the best of my knowledge , it has not previously formed the basis for any degree, diploma, research papers or other similar titles by this or any other University. ________________ Asst.Prof. Snehal Jadhav (Coordinator of B.B.A (FS) Department) VVM’s Shree Damodar College of Commerce and Economics
  5. 5. 4 TABLE OF CONTENTS CHAPTER NO. CONTENTS PAGE NO. 1 Introduction 1.1 Introduction to workplace(internship) 5-6 1.2 Objectives 6 1.3 Scope of the study 6 1.4 Limitations of the study 7 1.5 Research methodology 7 1.6 Literature review 7 Chapterization Scheme 8 2 Tourism Taxation 2.1 Introduction to tourism 9-11 2.2 Impacts of tourism on the economy 12-13 2.3 Introduction to tourism taxation 14-15 2.4 Types of taxes applicable in the tourism industry. 15-18 3 Hotel Industry 3.1 Introduction to hotel industry 19-22 3.2 Functioning of the finance department (accounting software) 22-24 4 Impact of Tourism Taxation 4.1 Impact of tourism taxation on the hotel industry 25-26 4.2 Impact of tourism taxation on the Indian Economy 26 5 Survey Analysis 5.1 Introduction 27-32 5.2 Survey analysis, suggestions and conclusion 33 6 Bibliography 34 7 Annexure 7.1 Survey 35-36
  6. 6. 5 CHAPTER-1: INTRODUCTION 1.1 INTRODUCTION TO WORKPLACE Golden Palms Hotel and Spa is a four star hotel that is situated in Colva, Goa. It comprises of a chain of hotels that are set up in Bengaluru, Delhi, Goa, Mussoorie and Zirakpur.Kuldip Singh Bhinder is the CEO and Executive Director of Golden Palms Hotel and Spa. He is the strategic head of the group hotels and oversees overall Sales & Marketing, Branding, Development and Operations of the group. The Managing Director isMr.Prashant. The Finance and Accounts Department is controlled by Mr.Rohan Audi. The Hotel currently uses the IDS Next software for managing all its accounts and also for the calculation of its tax. Organization study is a part of BBAProgram which a student has to undergo Internship training during their course of study. It narrows the gap between theoretical knowledge and practical situations. The intention of organization study is to have an exposure of real organization function and to strengthen the theoretical knowledge. The internship program was done at GOLDEN PALMS HOTEL AND SPA BEACH RESORT which is a 4-star resort. It one of the luxury resorts in South Goa’s Colva beach. During the period of one month, we were able to experience the various function of the finance department of the organization and also came across a few problems faced by the organization in terms of tourists and taxes.
  7. 7. 6 Tourism is an important and flourishing industry in the country. It accounts for one-third of the foreign exchange earnings of India and also gainfully employs the easily the highest number of people compared to other sectors. According to the World Tourism Organization, by the year 2020, it is expected that India will become the leader in the tourism industry in South Asia, with about 8.9 million arrivals. Of late the Indian tourism economy has been deemed as the second- most rapidly increasing (8.8%) tourism economy in the world, by World Travel and Tourism. 1.2 OBJECTIVES OF THE STUDY To study tourism taxation and the taxes applied in the tourism industry. To study the role of the hotel industry in India and the software used by them. To study the impact of tourism taxation on the hotel industry and Indian Economy. 1.3 SCOPE OF STUDY This study will provide students and academics with insights into tourism and the hotel industry and ideas for future research, helping to develop a reliable knowledge base from which tourists can be informed and make future plans based on this research, also preparing people with the expertise, commitment, and skills for management, marketing, and operations positions in the expanding industry that provides food, accommodations, and tourism services to people away. This paper also aims to provide a brief historical analysis of tourism taxation by outlining its origins and development, utilizing examples from various destinations. It highlights the effects to date that these taxes and fees have incurred on stakeholders, such as governments and tourists alike, and the industry itself.
  8. 8. 7 1.4 LIMITATIONS OF THE STUDY The organization was confidential about their financial statements and departmental operations. The study was done according to the functions of only the finance department. 1.5 RESEARCH METHODOLOGY The research methods used for the study were through primary sources as well as secondary sources. Information was provided by a personal conversation with the HR Manager and also the Finance Manager. Information was also obtained through secondary sources i.e. articles and online research papers. 1.6 LITERATURE REVIEW In a research article (pdf file) by NishaalGooroochurn and M. Thea Sinclair (2003/2002) have mentioned that Tourism’s role as one of the fastest growing economic activities in the world makes it a keytarget for taxation. As a major source of foreign currency receipts, tourism appears to be thesalvation for governments faced with budgetary constraints and pressures to decrease theirreliance on income tax and tariffs as sources of revenue. In another Research article(pdf file) by Daniel J. StynesdescribesTourism’s economic impacts are therefore an important consideration in state, regional and community planning and economic development. Economic impacts are also important factors in marketing and managementdecisions. Communities therefore need to understand the relative importance of tourism to their region, includingTourism’s contribution to economic activity in the area. The research paper `Trends in Taxation on Tourism Services & Products` written by Kevin Tavares from School of Hospitality and Tourism Management, University of Guelph states the impact tourism taxation has on tourists, the Government and the tourism industry as a whole.
  9. 9. 8 CHAPTERIZATION SCHEME CHAPTER -1: INTRODUCTION Itincludes anintroduction to the workplace(internship), the objectives of the study, scope andlimitations of the study,research methodology used for collection of data and the literature review. CHAPTER -2: TOURISM TAXATION It includes an introduction to tourism and gives a brief description on the impacts of tourism on the economy.It also explains what tourism taxation is about and the various types of taxes applicable in the tourism industry. CHAPTER – 3: HOTEL INDUSTRY This chapter gives an introduction to the hotel industry andthe software used by them to calculate tax. CHAPTER -4: IMPACT OF TOURISM TAXATION. This chapter traces the impact of tourism taxation on the hotel industry and ontheIndian Economy. It also includes an analysis on the survey conducted regarding the impact of taxation.
  10. 10. 9 CHAPTER-2 : TOURISM AND TOURISM TAXATION 2.1 INTRODUCTION TO TOURISM Tourism industry is one of the largest industries in the world today with more and more people travelling for leisure or business, thanks to higher disposable income and falling travelling costs. The Indian hospitality industry has recorded healthy growth fuelled by robust inflow of foreign tourists as well as increased tourist movement within the country and it has become one of the leading players in the global industry. Tourism is one of the fastest growing industries of the world. It plays vital role in the economic development of a country. India is one of the popular tourist destination in Asia and so Tourism is the second largest foreign exchange earner in India. The tourism industry employs a large number of people, both skilled and unskilled. Hotels, travel agencies, transport including airlines benefit a lot from this industry. Tourism promotes national integration and international understanding, generates foreign exchange and also promotes cultural activities. Tourism promotes the traditional handicrafts sector too thereby giving tourists an insight into the rich and diverse cultural heritage of India. In the past few years, India has witnessed spurring growth in both international and domestic tourists. The country greets around 5.5 mn international visitors every year and nearly 740 mn domestic tourists. Tourism in India has picked up over the last decade, which has prompted the government to accord priority to the development of tourism sector by announcing various fiscal and monetary incentives.
  11. 11. 10 Expected share of tourists by expenditure Domestic travellers are expected to contribute around 83.5 per cent to total tourism revenues by 2023. Chart 2.1 Source: Sector report as on October 2014 Advantages of tourism: About 5.92% of the country’s GDP comes from tourism and it provides employment to over 9.24% of the country’s workforce. For every INR 1 million of investment, the number of jobs created is as follows:  Industry – 18  Agriculture – 45  Travel & Tourism – 78
  12. 12. 11 The sector’s performance over the past decade has also been quite promising as is evident from the following figures. Foreign Tourist Arrivals (FTAs) in India between January and June, 2000 –2010 Table 2.1 Year FTAs (in million) % change over the previous year 2000 2.65 6.7 2001 2.54 -4.2 2002 2.38 -6.0 2003 2.73 14.3 2004 3.46 26.8 2005 3.92 13.3 2006 4.45 13.5 2007 5.08 14.3 2008 5.28 4.0 2009 5.17 -2.2 2010 5.58 8.1 Source: Sector report, Tourism in India The Indian Tourism Industry has acted as a tool to stimulate other sectors and in turn help in overall development of the Indian economy. The growth of the tourism sector has helped the government increase its revenues, which is invested for general economic improvement. During 2010, the FEE from tourism was estimated at US$ 14.19 bn as compared to FEE of US$ 11.39 bn during 2009. The tourism industry is also known to create ample of jobs both within the skilled and the unskilled category. In 2011, the global travel and tourism industry employed close to 258 million people and generated USD 5,991.9 billion or 9.1% of the world’s GDP.
  13. 13. 12 Tourism industry in India has several positive and negative impacts on the economy and society. These impacts are highlighted below. 2.2 IMPACTS OF TOURISM ON THE ECONOMY POSITIVE IMPACTS 1. Generating Income and Employment: Tourism in India has emerged as an instrument of income and employment generation, poverty alleviation and sustainable human development. It contributes 6.23% to the national GDP and 8.78% of the total employment in India. Almost 20 million people are now working in the India’s tourism industry. 2. Source of Foreign Exchange Earnings: Tourism is an important source of foreign exchange earnings in India. This has favourable impact on the balance of payment of the country. The tourism industry in India generated about US$100 billion in 2008 and that is expected to increase to US$275.5 billion by 2018 at a 9.4% annual growth rate. 3. Preservation of National Heritage and Environment: Tourism helps preserve several places which are of historical importance by declaring them as heritage sites. For instance, the TajMahal, the QutabMinar, Ajanta and Ellora temples, etc, would have been decayed and destroyed had it not been for the efforts taken by Tourism Department to preserve them. Likewise, tourism also helps in conserving the natural habitats of many endangered species. 4. Developing Infrastructure: Tourism tends to encourage the development of multiple-use infrastructure that benefits the host community, including various means of transports, health care facilities, and sports centres, in addition to the hotels and high-end restaurants that cater to foreign visitors. The development of infrastructure has in turn induced the development of other directly productive activities.
  14. 14. 13 NEGATIVE IMPACTS 1. Undesirable Social and Cultural Change: Tourism sometimes led to the destruction of the social fabric of a community. The more tourists coming into a place, the more the perceived risk of that place losing its identity. A good example is Goa. From the late 60's to the early 80's when the Hippy culture was at its height, Goa was a haven for such hippies. Here they came in thousands and changed the whole culture of the state leading to a rise in the use of drugs, prostitution and human trafficking. This had a ripple effect on the country. 2. Increase Tension and Hostility: Tourism can increase tension, hostility, and suspicion between the tourists and the local communities when there is no respect and understanding for each other’s culture and way of life. This may further lead to violence and other crimes committed against the tourists. 3. Creating a Sense of Antipathy: Tourism brought little benefit to the local community. In most all-inclusive package tours more than 80% of traveller`s fees go to the airlines, hotels and other international companies, not to local businessmen and workers. Moreover, large hotel chain restaurants often import food to satisfy foreign visitors and rarely employ local staff for senior management positions, preventing local farmers and workers from reaping the benefit of their presence. This has often created a sense of antipathy towards the tourists and the government.
  15. 15. 14 2.3INTRODUCTION TO TOURISM TAXATION According to Pearson Education, 2005, Tourist tax is defined as, “taxes specifically levied on tourists generally through businesses that deal with tourists. These can be entry taxes, hotel taxes or other specific tourism industry-based tax”. This definition encompasses a variety of monetary-based schemes in which various governments, businesses and individuals earn vital funding. Tourism has been an industry that has been taxed from its very beginning in order to raise revenues and compensate for negative externalities. According to research conducted by Gooroochurn& Sinclair (2005), there are over 40 different taxes worldwide that are applied to various facets of the tourism industry. End consumers however, pay the majority of these taxes rather than businesses. According to Forsyth & Dwyer, 2002, the tourism industry is one of the highest taxed industries worldwide and continues to trend upwards in terms of rates of taxation. Currently, the most predominant type of tourist tax is called “bed tax” or alternatively “accommodations tax,” where consumers pay an additional charge on their accommodation’s bill. The level of taxation on the end consumer is increasing over the last few years not only through bed taxes but taxes such as ticket fee tax, and security fee tax. These overall increases show a trend in the tourism industry of the end consumer having to consistently pay higher costs in taxes and fees for the same service. These high rates and multiplicity of taxes has led to tourist packages being overpriced in comparison with those available in competing destinations. In India there are taxes on almost all segments of a package and this multiplicity of taxes has resulted in over pricing. One of the indicators of over pricing of Indian destinations is that our outbound ismore than twice the inbound tourism. While the high cost of packages to Indiandestinations are deterring inbound tourism, the relatively affordable packagesoffered by competing destinations (e.g. South East Asia) are luring the Indiantourists in larger numbers.
  16. 16. 15 This is evident from the table below: Table 2.2 Year Inbound tourism to India ( in million) Percentage growth over previous year Outbound tourism from India (in million) Percentage growth over previous year 2007 5.08 14.3 9.78 17.3 2008 5.28 4 10.87 11.1 2009 5.17 -2.2 11.07 1.8 2010 5.58 8.1 12.07 9.0 Source: Sector report, Tourism in India 2.4 TYPES OF TAXES APPLICABLE IN THE TOURISM INDUSTRY: Taxes on Hospitality and Tourism Sector 1. Luxury Tax: Levy of luxury tax on hotel accommodation is a State subject. TheState Governments/UTs have the power to levy luxury tax on hotel tariff. According to the “Report Of The Working Group Of Tourism” by The Ministry of Tourism Government Of India`s 12th Five Year Plan (2012-2017), it canbe observed that the taxes range from 4% to 20%. In many States, the levy ofluxury tax is on printed tariff as against the actual tariff paid by the visitor. Theactual tax rates shoot of up to 30% as the tariff charged can be substantially lessthan printed tariff, particularly in the lean season. In addition, the State Governments/UT Administrations have also specified athreshold limit below which the luxury tax is exempted. These exemption limits are as low as Rs.200 per day. Incertain states, these threshold limits were fixed long time back and have notbeen revised according to the inflationary trends. This essentially means thatalmost all classes of
  17. 17. 16 accommodation including the budget accommodation areunder the purview of luxury tax. The cumulative impact of the tax structure isthat room tariffs become exorbitant high and act as a major deterrent to inboundand domestic travel. For popular circuits covering several states (like the Golden Triangle of Delhi-Agra-Jaipur), hotels may be charging different tax rates at different destinationsleading to confusion and tourist dissatisfaction. In the budget of F/Y 2011-12, a service tax of 10% (with an abatement of 50%) on hotels having a tariffs above Rs.1000 was imposed. This had a dampening effect on the tourism sector as the levy was imposed with immediateeffect resulting in increase of tariffs and package costs for services alreadybooked. As per the information received from Hotel Association of India (HAI), theprevailing tax rates on hotels for some of the countries are as follows: Table 2.3 S.No. Country Taxes on Hotels 1. China 5% 2. Japan 5% 3. Malaysia 6% 4. Singapore 7% 5. Hongkong Nil 6. Thailand 7% Source: Sector report, Tourism in India 2. Taxes on Food & Beverages Both domestic and international travelers consume food and beverages. The Report of The Working Group On Tourism also gives details of VAT applicable on food item and liquor. The VAT on food item ranges from 5% to 16.84% in various states.
  18. 18. 17 Similarly, VAT on liquor varies from 13% to 58%. In addition, from budget of2011-12, a service tax of 10% (with an abatement of 70%) on air conditionedrestaurants had been imposed. 3. Taxes on Road Transport International and domestic touristsmove around the destinations in tourist coaches/ cars. Many of the populartourist circuits require inter-state movements. The golden trianglecircuit of Agra- Delhi-Jaipur cover 4 states of Delhi, Haryana, Uttar Pradesh andRajasthan. While moving across these 4 states, the tourist vehicles have to payroad and passenger taxes. The tax structure varies from state to state. The taxes can be levied per seatbasis or per k.m. basis. They could be calculated on per day, weekly, monthly orquarterly basis. Due to the absence of centralized tax payment facilities, thetourist vehicles have to stop at each entry/state border to pay these taxes. Thiscauses undue delay in itinerary resulting in dissatisfaction of the tourists. Accordingto estimates made by Indian Tourist Transport Association (ITTA), for a 3 day package between Delhi, Agra and Jaipur, the total rate andpassenger tax paid is 23% of the package cost. 4. Taxes on Air Travel The cost of Air travel in India is also considered on a higher side compared to thecompeting destinations. This has not only deterred the domestic travel but alsomade the packages for international tourists costly. Based on the informationreceived from the travel agents, multiple taxes are levied on air ticket as follows: i. Fuel surcharge varying from Rs.1850 to Rs.2500/-. ii. Transaction charge varying from sector to sector. iii. New service tax of Rs.185/-. iv. Passenger service tax v. Airport Tax/User development fee which varied from Rs.200 to Rs.400/-depending on port of departure. vi. Service tax (0.62% of basic fare charged from the travel agents/tour operatorservices. The taxes charged bythe various airlines also vary significantly. This leads to a lot of confusion and thelack of transparency causing dissatisfaction among the customers, tour operatorsand travel agents.
  19. 19. 18 The ATF ranges from 20 to 38% in various states.This tax increases the cost of the services delivered by the airlines and isreflected in basic fare. The industry has been demanding rationalization of taxstructure and the ATF charges to bring the cost of air travel at competitive levels. As a result of high priced air fare is that even the annual conventions ofstakeholder associations of Indian tourism industry like TAAI and FHRAI arebeing organized outside India.
  20. 20. 19 CHAPTER-3 :THE INDIAN HOTEL INDUSTRY 3.1 INTRODUCTION TO HOTEL INDUSTRY The Indian hospitality industry has emerged as one of the key industries driving growth of the services sector in India. It has evolved into an industry that is sensitive to the needs and desires of people. The fortunes of the hospitality industry have always been linked to the prospects of the tourism industry and tourism is the foremost demand driver of the industry. The Indian hospitality industry has recorded healthy growth fuelled by robust inflow of foreign tourists as well as increased tourist movement within the country and it has become one of the leading players in the global industry. Foreign tourist arrivals (FTAs) into the country increased steadily from 2002 to 2008. FTAs dipped in 2009, due to the global economic slowdown; however, the impact on the Indian industry was much lower than that on the global counterparts. FTAs are expected to increase in 2010. On the other hand, domestic tourist movement within the country was the highest in 2009. INDUSTRY CHARACTERISTICS Major characteristics of the Indian hospitality industry are: 1. High seasonality The Indian hotel industry normally experiences high demand during October–April, followed which the monsoon months entail low demand. Usually the December and March quarters bring in 60% of the year’s turnover for India’s hoteliers. However, this trend is seeing a change over the recent few years. Hotels have introduced various offerings to improve performance (occupancy) during the lean months. These include targeting the conferencing segment and offering lucrative packages during the lean period.
  21. 21. 20 2. Labour intensive Quality of manpower is important in the hospitality industry. The industry provides employment to skilled, semi-skilled, and unskilled labour directly and indirectly. In India, the average employee-to-room ratio at 1.6 (2008-09), is much higher than that for hotels across the world. The ratio stands at 1.7 for five-star hotels and at 1.9 and 1.6 for the four-star and three-star categories respectively. Hotel owners in India tend to “over-spec” their hotels, leading to higher manpower requirement. With the entry of branded international hotels in the Indian industry across different categories, Indian hotel companies need to become more manpower efficient and reconsider their staffing requirements. 3. Fragmented The Indian hotel industry is highly fragmented with a large number of small and unorganised players accounting for a lion’s share. The major players in the organised segment include The Taj, Oberoi, ITC Hotels, and East India Hotels. GROWTH DRIVERS IN THE HOTEL INDUSTRY The fortunes of the hospitality industry are closely linked to the tourism industry and hence tourism is one of the most important growth drivers. In addition, all factors that aid growth in the tourism industry also apply to the hospitality industry. The Indian hospitality industry has recorded healthy growth in recent years owing to a number of factors: (i) Increased tourist movement Increased FTAs and tourist movement within the country has aided growth in the hospitality industry. Healthy corporate profits and higher disposable incomes with easier access to finance have driven the rise in leisure and business tourism, thus having a positive impact on the hospitality industry.
  22. 22. 21 (ii) Economic growth India is one of the fastest growing economies in the world. It recorded healthy growth in the past few years, at more than 9% each during FY06-FY08. Despite the global economic slowdown, the Indian economy clocked growth of 6.7% and 7.4% in FY09 and FY10 respectively. Attractiveness of India has encouraged foreign players to set up their operational facilities in the country. Domestic industries have also made heavy investments to expand their facilities through Greenfield and brownfield projects. (iii) Changing consumer dynamics and ease of finance The country has experienced a change in consumption patterns. The middle class population with higher disposable incomes has caused the shift in spending pattern, with discretionary purchases forming a substantial part of total consumer spending. Increased affordability and affinity for leisure travel are driving tourism in India and in turn aiding growth of the hospitality industry. Emergence of credit culture and easier availability of personal loans have also driven growth in the travel and tourism and hospitality industries in the country. MEASURES UNDERTAKEN BY THE GOVERNMENT Various policy measures undertaken by the Ministry of Tourism and tax incentives have also aided growth of the hospitality industry; some of them include:  Allowance of 100% FDI in the hotel industry (including construction of hotels, resorts, and recreational facilities) through the automatic route  Introduction of ‘Medical Visa’ for tourists coming into the country for medical treatment  Issuance of visa-on-arrival for tourists from select countries, which include Japan, New Zealand, and Finland  Promotion of rural tourism by the Ministry of Tourism in collaboration with the United Nations Development Programme  Elimination of customs duty for import of raw materials, equipment, liquor etc
  23. 23. 22  Capital subsidy programme for budget hotels  Exemption of Fringe Benefit Tax on crèches, employee sports, and guest house facilities  Five-year income tax holidays for 2-4 star hotels established in specified districts having UNESCO-declared 'World Heritage Sites'. 3.2 FUNCTIONING OF THE FINANCE DEPARTMENT (ACCOUNTING SOFTWARE) Software used in the Hotel Industry to Calculate Tax. It is important for a hotel to have software which takes complete care of a hotel property. Right from managing front office to back office, hotel software is the most important aspect of a hotel. It is an important tool for the hospitality industry as it makes hotel operations easy and efficient. However, it is important for a hotel investing in software to choose one that enhances guest satisfaction and encourages guests to visit the property again and again. In a competitive hospitality market, you will find a large number of technology providers. However it is very critical for a hotel to choose the right vendor. The most important thing is to have a detail thought through understanding of the needs and requirement of the hotel. IDS NEXT, formerly Intellect Data Systems, was established on 27th August 1987. A property management solutions provider for the hospitality and leisure industry, the organization is headquartered in Bangalore, India. It has 3000 clients in 40 countries and 300 employees in 7 offices in India and the Middle East. IDS NEXT also has partners in 22 countries and is ISO 9001:2008 certified. The company engaged in a rebranding exercise in March 2012 to launch its 'Easy' initiative.
  24. 24. 23 The company also launched a training academy for their customers called IDS NEXT Advantage Academy. Training are conducted at their head office in Bangalore IDS Next’s Contribution: Apart from empowering the hospitality industry across the globe IDS Next provides cutting edge IT solutions. The Company has also added immense value towards the whole ecosystem of the hotel management education. Its softwares have been incorporated in to the syllabuses of over 80 educational institutes across the country.
  25. 25. 24 IDS Next’s hotel ERP covers all aspects and functions of the hospitality industry. The software modules include :-  Front Office Management  Reservation  Point Of Sale  Accounts Receivables  Sales and Marketing  Banquets and Conferencing  Membership Management  Telephone Management  Financial Accounting System  Stores and Purchase Inventory  Food and Beverage Costing  Engineering and Maintenance  Human Resource and Payroll
  26. 26. 25 CHAPTER- 4 : IMPACT OF TOURISM TAXATION 4.1 IMPACT OF TOURISM TAXATION ON THE INDIAN HOTEL INDUSTRY Hotels and other accommodations are the most important revenue generator of the tourism industry and is also easier to tax. With the addition of Service tax in Budget 2011–12, India has by far, the highest taxes as compared to the neighbouring tourist destinations. Tourism is being targeted as a growing source of tax revenue by governments across the world. Comparison of tax rates The Table below illustrates the comparative tax rates between India and the neighbouring countries: Table 4.1 Countries Room % Food % Liquor % India 16 16 23 Hong Kong 0 0 0 Maldives 3.5 3.5 3.5 China 5 5 5 Japan 5 5 5 Malaysia 6 6 6 Thailand 7 7 7 Singapore 7.7 7.7 7.7 Source: Sector report, Tourism in India For any international traveler coming to India, the major services availed can be categorized into hotel accommodation, Food & Beverages (F & B) consumption, airtravel and road travel. It has been observed that the tax structure not only leads toincrease in cost of these packages but also obstructs seamless flow of tourists. For each services consumed by domestic/foreign tourists, the
  27. 27. 26 tax structure varies fromstate to state, often complicated and is definitely on the higher side. Thus Indiaremains predominantly a “once in a lifetime” destination. The high rate of taxes charged in the Hotel industry in India put a lot of pressure on the hotels as they are forced to increase the cost of the goods and services provided by them. It puts the hotel in a bad situation as there is a general belief among customers that the hotel is just trying to earn more profits by charging higher rates. However in reality, a substantial amount of the revenue earned is deducted as tax thus lowering the profits of the hotel. Therefore, there is a need to reviewthe tax regime for long term sustainable growth of tourisms sector. 4.2 IMPACT OF TOURISM TAXATION ON THE INDIAN ECONOMY. On one hand, the taxes collected through the Tourism Industry benefits the Indian Economy as the funds collected are utilized for augmentationof the Tourism sector. These tax funds and the Government incentives help in infrastructure development and other amenities that support the tourism sector in a great way. On the other hand, the increase in taxes has also led to a decrease in the number of tourists that visit India leading to a huge decline in the revenues earned. Thus, Tourism Taxation can be considered as a boon as well as a bane for the Indian Economy. However, for optimum efficiency, a proper balance should be constructed and maintained in the percentage of tax to be levied. A proper review of all the policies should also be done. Only then will the Indian Economy be competent and resourceful.
  28. 28. 27 CHAPTER-5 : SURVEY 5.1 INTRODUCTION. A survey was conducted to find out the reaction of people towards the taxes charged in the tourism industry and whether their decision has an impact on the Indian Hotel Industry. Following are the charts that represent their answers to each of the questions asked in the survey: Pie chart 5.1 Q1.Prefernce of hotels Author’s Creation According to the survey, 22% of the people preferred 3 star hotels while 18% of the people preferred 4 star hotels. However a majority of the people listed 5 star hotels as their preference with 42% of the participants opting for it. 3 Star 22% 4 Star 18%5 Star 42% None of the above 18%
  29. 29. 28 Pie chart 5.2 Q2.How often do you stay in a hotel? Author’s Creation According to the survey, 30% of the people interviewed said that they went for a holiday and stayed in a hotel once a year while 22% of the people selected the “Twice a year” option. However, 48% of the participants have stayed in hotels more than twice a year. Once a year 30% Twice a year 22% More than that 48%
  30. 30. 29 Pie Chart 5.3 Q3.Were you satisfied with the service provided by the hotel? Author’s Creation According to the survey conducted, only 36% of the people interviewed replied in affirmative when asked if they were satisfied with the level of services provided in hotels. A majority of the people felt that the services were not world class and therefore do not justify the high prices. They stated that efforts should be made to improve the quality of services to bring them at par with international standards provided in other comparable hotels. This would in turn get in the big spenders and the elite clientele who would not mind paying for quality services. Yes 36% No 64%
  31. 31. 30 Pie chart 5.4 Q3.Do you feel the taxes charged on food and accommodation is too high? Author’s Creation 86% of the people participating in the survey thought that the taxes and surcharge levied on the food and beverages made the same out of reach and way beyond their budget. Given the special status that Goa enjoys, a lot majority of people felt that the Government should either do away with the taxes or else levy a very nominal rate. With the cost of procurement of items of consumption already high, with the added taxes inflating the food bill, people feel the pinch and hence this acts as a detriment to the tourism industry. Yes 86% No 14%
  32. 32. 31 Pie Chart 5.5 Q5.Do you feel the tax rates charged justify the services provided to you? Author’s Creation The tax rates are set by the respective State Governments with a view towards increasing revenue. Frequent changes in Government policies create an unstable climate and with no clear policy relating to the tourism industry, the taxes are raised arbitrarily with no thought given to the paying customer. 74 % tourists felt that since there is very little contribution or incentives given by the Government, and hence it cannot justify periodic raise in tax slabs. They view it as an extra burden on the already tight budget and maintain that the tax slabs should hold for a substantial period of time. Yes 26% No 74%
  33. 33. 32 Pie chart 5.6 Q6.Would you visit the same place even after knowing that the taxes are high? Author’s Creation The well-read traveller and frequent tourists come with an intimate knowledge of goods and services provided by various segments of hotels, travel agents, car rental companies and they are aware of best practices in the hotel industry. A whopping majority of 82 % people interviewed found that the goods and services provided by the Goa Tourism industry are much higher compared to the quality of services provided and they add up to the already high pricing charged in the peak season Yes 18% No 82%
  34. 34. 33 5.2 SURVEY ANALYSIS AND SUGGESTIONS A lot of tourism is also promoted by word of mouth and when so many people feel the same way that taxes are too high they would rather not visit the place the next time around and rather go to some place where taxes are not too high and consequently they are not forced to pay such exorbitant prices. This negative publicity would only spell doom for the tourism industry and since so much of Goa’s economy is tourism based it would not augur well for the various stakeholders who invest so much of their funds to create the tourism related infrastructure. With the mining industry at a standstill and consequent widespread unemployment, it would only add to the common man`s misery. All those interviewed / participating in this survey were of the opinion that more Governmental concessions were required if Goa’s tourism were able to sustain itself and thrive in a fiercely competitive environment. In fact there should be some concessions on taxable items such as luxury tax, so that people are enticed into utilizing the capacity offered by the hotels and other tourism related activities. Conclusion Thus the high incidence of taxes in India certainly makes travelling abroad cheaper than that within India. This impacts inbound tourists and definitely promotes the outbound Indian traveller. Increased service tax on airfares makes them dearer. Independent restaurants suffer with an additional 10% tax for being air-conditioned, in a country where temperatures soar up to 48–50oC. For an industry which is aggressively trying to boost ‘Domestic Tourism’ this implies loss of business to neighbouring countries. For travel and tour operators this is an obstruction since they all sign their contracts, 12 months in advance. They have little choice but to either absorb the tax or lose the contract. This amounts to loss of revenue as well as credibility in the international market. Thus, a fine balance should be maintained in the taxes levied in order to make the working of the Indian Economy more efficient.
  35. 35. 34 CHAPTER 6: BIBLOGRAPHY 1) 2) 3) tax-breaks 4) THE WELFARE EFFECTS OF TOURISM TAXATION NishaalGooroochurn and M. Thea Sinclair 2003. 5) Taxing Tourism in Developing Countries Principles for improving the investment climate through Simple, fair, and transparent taxation Business Taxation By Laurent Corthay, Jan Loeprick 6) Report On The Working Group Of Tourism” by The Ministry of Tourism Government Of India, 12th Five Year Plan (2012-2017).
  36. 36. 35 CHAPTER 7: ANNEXURE 7.1 SURVEY BBA (FINANCIAL SERVICE) SECOND YEAR SEMESTER III Tourism taxation and its effects on the Indian Hotel Industry and the Economy We are conducting a survey to find out the reaction of people towards the taxes charged in the tourism industry and whether their decisions have an impact on the Indian Hotel Industry as a part of our second year BBA (FS) project report. Kindly fill in answers of questions mentioned below. Name: _________________________________ Age: ____________ Occupation: __________________________ Gender: _________________ 1. Preference of hotels:  3 stars  4 stars  5 stars  None of the above 2. How often do you stay in a hotel?  Once a year  Twice a year  More than that 3. Were you satisfied with the services provided by the hotel?  Yes  No 4. Do you feel the taxes charged on food and accommodation is too high?  Yes  No
  37. 37. 36 5. Do you feel the tax rates charged justify the services provided to you?  Yes  No 6. Would you visit the same place even after knowing that the taxes are high?  Yes  No 7. What are your views on the taxes charged in the Hotel Industry?