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Service tax on services provided overseas should be withdrawn
February, 27th 2016

The tourism industry should be treated at par with exporters based on its foreign exchange earnings. Tourism industry gets discriminated vis-a -vis exporters and tourism industry does not get any benefits that exporters of goods receive inspite of the fact that tourism industry earns foreign exchange and retention of foreign exchange is much higher than any other export oriented industry.

Like exporters, based on foreign exchange earnings, tour operators should also get exemption of service tax on package tours as the payment is received in foreign exchange. With the service tax added at present, India packages lose on account of price competitiveness and cannot match the prices on holiday packages, which are on offer by countries like China, Thailand, Malaysia, Sri Lanka, Singapore, and Hong Kong.

In our service sector, it is a common business practice that services are sub-contracted to the same category of service provider i.e. a tour operator sub-contracts to other tour operator. Eventually on the same transaction, tax is being paid by two tour operators without being allowed the CENVAT Credit. Sometimes, such transaction is sub-divided between many tour operators. Thus, ultimately on many points, service tax is being charged without giving the benefit of CENVAT Credit, which leads to the multiplicity of the taxes on the same transaction having a serious cascading effect. This happens frequently in respect of inbound tours and such multiplicity of service tax leads to higher cost, which has adverse impact on the foreign tourists, as India tends to get expensive and they prefer visiting neighboring countries. Thus India loses, on one hand, the foreign exchange and on other hand, it has adverse impact on the creation of employment opportunities.

It is suggested that when the same service provider sub-contracts its activity to the similar service provider, service tax charged by the sub-contractor should be allowed as CENVAT Credit to the main service provider to avoid multiplicity of the service tax on the same transaction. Or provide exemption from charging service tax within the same category of service providers.

Service tax is levied for the services provided to Indian tourists visiting neighbouring countries like Nepal, Bhutan, Sri Lanka, Bangladesh, Maldives etc., which was not there prior to July 2012. This needs to be withdrawn as services are provided outside India.

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