Vidya Vikas Mandal`s
SHREE DAMODAR COLLEGE OF COMMERCE AND
TITLE OF THE PROJECT
TOURISM TAXATION AND ITS EFFECTS ON THE INDIAN
HOTEL INDUSTRY AND THE ECONOMY.
Ms. SNEHAL JADHAV
(ASST. PROF. IN FINANCE)
SECOND YEAR BACHELOR IN BUSINESS ADMINISTRATION
INTERNSHIP VENUE: THE GOLDEN PALMS HOTEL AND SPA,
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.
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.
Sr.no Names Roll No Signature
1. Trisha George 13906
2. PiancaGracias 13907
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
TABLE OF CONTENTS
CONTENTS PAGE NO.
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
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
7.1 Survey 35-36
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.
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.
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
Information was provided by a personal conversation with the HR Manager and also the Finance
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.
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
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
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.
CHAPTER-2 : TOURISM AND TOURISM
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.
Expected share of tourists by expenditure
Domestic travellers are expected to contribute around 83.5 per cent to total tourism revenues by
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
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
% 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.
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
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
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.
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.
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
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.
This is evident from the table below:
Year Inbound tourism
to India ( in
India (in million)
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
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
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
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
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
As per the information received from Hotel Association of India (HAI), theprevailing tax rates
on hotels for some of the countries are as follows:
S.No. Country Taxes on
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.
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
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
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
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.
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.
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.
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.
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
(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
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
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
The company engaged in a rebranding exercise in March 2012 to launch its 'Easy' initiative.
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.
IDS Next’s hotel ERP covers all aspects and functions of the hospitality industry. The software
modules include :-
Front Office Management
Point Of Sale
Sales and Marketing
Banquets and Conferencing
Financial Accounting System
Stores and Purchase Inventory
Food and Beverage Costing
Engineering and Maintenance
Human Resource and Payroll
CHAPTER- 4 : IMPACT OF TOURISM TAXATION
4.1 IMPACT OF TOURISM TAXATION ON THE INDIAN
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 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
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
4.2 IMPACT OF TOURISM TAXATION ON THE INDIAN
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.
CHAPTER-5 : SURVEY
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
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.
None of the
Pie chart 5.2
Q2.How often do you stay in a hotel?
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
Twice a year
More than that
Pie Chart 5.3
Q3.Were you satisfied with the service provided by the hotel?
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.
Pie chart 5.4
Q3.Do you feel the taxes charged on food and accommodation is too high?
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.
Pie Chart 5.5
Q5.Do you feel the tax rates charged justify the services provided to you?
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.
Pie chart 5.6
Q6.Would you visit the same place even after knowing that the taxes are high?
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
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
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
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.
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.
CHAPTER 6: BIBLOGRAPHY
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).
CHAPTER 7: ANNEXURE
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
Name: _________________________________ Age: ____________
Occupation: __________________________ Gender: _________________
1. Preference of hotels:
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?
4. Do you feel the taxes charged on food and accommodation is too high?
5. Do you feel the tax rates charged justify the services provided to you?
6. Would you visit the same place even after knowing that the taxes are high?
7. What are your views on the taxes charged in the Hotel Industry?