Worst ever budget for tourism

The tourism industry's jubilant reaction that the budget was the first ever tourism-friendly one was based on a misconception. No one had read the small print.

All that the industry saw was that the government had removed the 10% hotel expenditure tax. No one realised, at the time, that the government had imposed an 8% service tax on the foreign exchange billing of tour operators.

The total cost that a foreign tourist pays for a visit to India, or the package cost, consists of hotel accommodation cost, transport cost, miscellaneous costs which include guides, entrance fees, train fares, portages, etc., besides the domestic airfare costs. Previously, expenditure tax of 10% was levied on the hotel component alone of the tour package cost.

Now an 8% service tax will be levied on the entire cost of the package. This pushes up costs dramatically. It is estimated that a single foreign tourist with a itinerary of 10 nights covering Delhi-Jaipur-Agra-Gwalior-Khajuraho-Varanasi-Delhi would have to spend almost two and a half times what he would otherwise have spent, thanks to the service tax.

Given the eagerness to extend the coverage of service tax, the kindest interpretation one can make is that the consequences of levying the tax on tour operators were not fully understood. When a tourist abroad wants to purchase a tour package to India, he typically approaches a travel agent or hunts for a package on the net. In both cases, the service provider is the tour operator in India. The foreign travel agent usually makes contact directly or through an intermediary with a tour operator in India.

India already suffers from lack of cost competitiveness vis-à-vis its south-east Asian neighbours. The incidence of all state and central taxes in India on a tour package is as high as 40% compared to a mere 10% in the case of India's south-east Asian neighbours. The removal of hotel expenditure tax was meant to rectify this problem to some extent. The levy of service tax, however, has compounded and multiplied the problem and made India a far worse destination in terms of cost than it was before.

Few know that tourism is India's second largest net foreign exchange earner after gems and jewellery and that the revenues from tourism last year (post 9/11!) were $2.8 billion. Till 2001, tourism brought in more foreign exchange than foreign direct investment (excluding foreign institutional investment). Whereas tourism brought in $3 billion plus consistently, FDI hovered between $2 to 3 billion. Till recently, the mandarins in the finance ministry usually thought fit to make a great song and dance about FDI and ignore tourism completely. Sadly, no one realised that FDI entailed dividend and other outward remittances whereas tourism was pure revenue or income along with its accompanying multiplier effect.

Few realise that for every Rs 10 lakh invested in tourism, on an average 47.5 jobs are created directly. In the hotel and restaurant sub-sector of tourism, the number of jobs created is even higher: 89. The corresponding figures for manufacturing is only 12.6 jobs and for agriculture 44.6 jobs. Tourism creates more jobs than even agriculture! Few also realise that the employment:output ratio for tourism is the highest at 71, followed by leather at 51 and textiles at 27. From a GDP multiplier point of view and from an employment generation point of view, tourism tops the list.

The social benefits of tourism are equally important. Tourism promotes national and international integration, encourages preservation of monuments, heritage properties and eco-sanctuaries, helps the survival of traditional art forms, crafts and culture and promotes international understanding.

Some of our neighbouring countries were quicker to recognise these facts. China receives 35 million plus visitors a year, Hong Kong: 15 million plus, Malaysia: 12 million plus, Thailand: 11 million plus, Singapore: 9 million plus and so on. But India receives only 2.5 million visitors a year.

At another level, tourism results when a destination is friendly, developed, clean, cost-effective and a pleasure to be in. Tourism requires the hospitality of the recipient population, their nurturing and understanding of the visitors and their clear desire to welcome and help them. Thus tourism requires education, health, sanitation, good roads and a host of other civic amenities that come about only with economic development. Will the budget kick-start an ailing economy and bring about a higher rate of economic growth? Unlikely.

The finance minister thought he was giving us was very significant and very exceptional measures to promote the tourism industry. But what he has given us, intentionally or otherwise, is the worst-ever budget for tourism.

(The author is chairman, Tourism & Civil Aviation Committee, PHD Chamber of Commerce and Industry)


Frome : http://articles.economictimes.indiatimes.com