Deep Kalra’s prescription for reviving Indian tourism faster includes a ₹2,000-cr annual bill

India’s tourism industry is poised for a strong comeback, exceeding pre-pandemic levels by the end of this year. But a steep cut in the interim budget for promoting Indian tourism overseas and high hotel taxes remain constant worries for the tourism sector, said Deep Kalra, chairperson of the World Travel and Tourism Council India Initiative.

India’s tourism and hospitality sectors need tax reforms to make them more competitive than those of other nations, several of which have lower hotel taxes, Kalra said in an interview with Mint ahead of the upcoming full-year budget for 2024-25. Simplifying the taxes and promoting Indian tourism in overseas markets more aggressively would revive interest in India among foreign travellers, said Kalra, also the founder-mentor of online travel platform MakeMyTrip. 

Edited excerpts from the interview: 

What are the immediate challenges India’s tourism sector is navigating?

The country’s tourism sector has moved beyond the pandemic, and we expect inbound, domestic and outbound tourism to surpass 2019 levels by the end of 2024, but maintaining economic stability and controlling inflation will be crucial for sustaining India’s tourism growth. The industry will also have to navigate a complex landscape, including geopolitical and economic uncertainties as well as the risks posed by extreme weather. 

Over the next five years, we will need to further intensify investments into improving infrastructure like transportation, accommodation, and tourist amenities to boost both domestic and inbound travel. 

With global inflation easing, incomes are expected to rise and as a result, disposable incomes. This will lead to increased consumption and travel, and growth will be seen both in domestic and outbound international tourism from India.

Earlier this year, in the interim budget for 2024-25, India’s ‘Incredible India’ tourism promotion campaign faced a funding crisis. The government allocated a meager ₹3 crore for overseas marketing, a dramatic 97% drop from the year before. What does that mean for the travel sector?

The tourism sector expects the full-year budget to address this key area. It is very important that there be an increased allocation of at least ₹2,000 crore for the ministry of tourism’s publicity and promotion budget. It is essential since the funding can boost our overseas digital marketing campaigns to more travellers abroad and enhance the country’s visibility in important markets abroad. This will also support domestic campaigns to encourage Indians to explore lesser-known destinations.

At present, there is a differential on the GST (goods and services tax) on hotel rooms. If a room is priced under ₹7,500 per night, a guest pays 12% GST, but 18% if the rate is higher. Do you feel this needs to change?

Yes. There needs to be a uniform GST rate of 12% on all hotel rooms. A flat rate would completely simplify tax calculations and reduce the administrative burden on hotels and give a lot of pricing transparency to travellers. They would know exactly what tax to expect on a hotel bill. 

This will help tourism year-round in more places and across the country. It will also make our hotels more competitive with those in other countries that have lower taxes. This change wouldn’t significantly affect the overall amount of tax collected by the government either, but it will make things fairer for travellers. 

Competitors in regions such as Australia, Cambodia, China, Indonesia, Thailand, and Malaysia offer much lower GST/VAT rates ranging from 2-10%, making their hospitality sectors more competitive. Adopting a consistent GST rate will strengthen our hospitality sector.

Indian travel agents were unhappy about the four-fold increase last year in the tax collected at source on international tour packages. This increased the upfront cost for travellers as the TCS rate skyrocketed from 5% to 20%, even though the tax is technically refundable at the end of the accounting year. Does this need to go away?

Currently, travellers have to pay TCS when they buy overseas tour packages or send money abroad under a scheme called the liberalised remittance scheme. The tax rates for this are either 5% or 20%. Although you can use this tax to reduce advance tax payments, it can’t be used to lower the taxes taken out of one’s salary or income tax. Since salaried workers pay a lot in taxes already, changing the law to let them use TCS to reduce their salary taxes would help them and make the tax system fairer.

The Integrated Goods and Services Tax Act of 2017 allows tax refunds for international tourists visiting India. But this has not been implemented yet. What kind of impact could such a programme have if implemented?

Implementing the IGST framework to offer GST refunds to international tourist spending is very important. IGST is a tax for goods and services moving between states and is collected by the central government and shared with states. For tourists visiting India, it can easily be refunded on the goods they purchase and take out of the country. But the rules and implementation process are still under development. 

This move, if it comes through, will boost local economies tremendously and create job opportunities, especially in retail sectors like handicrafts and textiles. We have seen data from the UK, for instance, which show the effectiveness of such schemes, with local shopping accounting for a significant portion of tourist expenditure.

The hospitality industry has been seeking an infrastructure status for at least a decade. But that has not happened yet. 

The list of hotels that qualify for infrastructure funding in India should be updated. At present, only big hotels in big cities qualify, and if the Harmonized List of Infrastructure is updated, it would allow for smaller hotels and meeting spaces in smaller cities to get funding too. 

Right now, it only allows upwards of three-star hotels in cities with populations over one million to qualify as infrastructure projects. 

There can also be a reduction in the minimum floor area requirement for convention and exhibition centers from 100,000 sq.m. to 10,000 sq.m. to have many more convention centers. These would encourage a lot of investment in midmarket and budget hotels, as well as in smaller meeting and conference venues in tier II and III cities. This can eventually stimulate local economies and help reduce seasonal fluctuations in tourism.