Tour operators are persons who help us in booking our vacation and help us to explore various places at reasonable cost and without any hassle which we face at the time of planning holidays.
Services by tour operator may include booking of hotel accommodation; booking of transportation, package tours (includes various services like accommodation, transport, food, cab facility entry fees in various adventure sports or amusement parks etc.)
When term “services” comes there comes Service Tax. Service tax will be leviable on all services provided in the taxable territory by a person to another for a consideration other than the services specified in the Service Tax Negative List.
Till 21.01.2017 tour operators were enjoying 90% of abatement on taxable value solely for arranging or booking accommodation for any person and 70% of taxable value on services in relation to a tour other than as above.
However with effect from 22.01.2017 abatement on services provided by tour operators has been reduced to 40% (i.e. taxable at 60%) provided that the bill issued for this purpose indicates that it is inclusive of charges of accommodation and transportation required for such a tour and the amount charged in the bill is the gross amount charged for such a tour including the charges of accommodation and transportation required for such a tour.
It can be concluded that service provided by tour operator other than specified above like only transportation service or only accommodation service, then such service provided by tour operator is 100% taxable. Albeit credit is allowed, but the costs would go very high for engaging services of tour operator for only booking of hotels, if full rate of Service Tax is applicable. This will deter the potential travellers to take services of tour operator.
Rationalization of abatement will affect the industry as they have to pay tax at the higher rates. Further Cenvat Credit on all input services is available and this would reduce the cascading of taxes. However condition of availing Cenvat Credit on all input services will not be much useful to the tour operator as they do not have many input services. Thus, indirectly they are going to suffer by paying more Service Tax. This will increase cost of tour operator hence holidays/vacations will become lavish as the burden of increased cost will pass on the customer.