A leisurely trip abroad is about to get 20% costlier for Indian travellers.
Earlier this week (May 16), India’s finance ministry notified that using international credit cards will be taxed at 20% from July 1, up from 5% now. This applies to overseas tour packages and other remittances, too, but not educational and medical expenses.
The government has also set a limit on the amount that can be sent out of India, including credit card usage during overseas travel, on hotel stays or tour packages. Under the Liberalised Remittance Scheme (LRS), individuals are allowed to remit only up to $250,000 every year without prior approval.
The government’s move has stirred up a debate and led to rollback calls from Indian citizens.
The hiked tax rate, in particular, is not sitting well with the travel industry that has sprung back to life only now following the covid-19 pandemic.
“The finance ministry is truly creating gaps and the business of travel and tourism is becoming a maze of tax collections,” Jyoti Mayal, president of Travel Agents Association of India, told The Economic Times.
Losing the game to global competition
In recent months, airfares and hotel room rates have surged due to the pent-up demand.
Indians spent $12.51 billion on overseas travel until February in the fiscal year 2023. This was 104% more than the expenditure in the same period last year. Outward remittance for travel in February alone stood at a little over $1 billion (pdf).
In March, several tour operators and local travel agents urged authorities to review the budget decision to the hiked tax on overseas tour packages. They have already lost business to global players like Expedia Group and Booking Holdings as customers looked for better pricing, and avoid paying the tax.
“Foreign companies are not charging GST (goods and services tax) on bookings. There are foreign companies that will take advantage of this move and will allow customers to pay on arrival, and there will be no revenue generation for the government,” Riaz Munshi, president of Outbound Tour Operators Association of India, told The Economic Times.
India’s outbound travel is only growing
India’s outbound travel has grown exponentially in recent months.
More than 18 million Indians travelled abroad between January and November 2022—this was around 70% of overall outbound visits in 2019, government data showed.
Meanwhile, foreign agents like Agoda, a subsidiary of Booking Holdings, are bullish on India’s domestic and international travel market, Mint reported in March. “I suspect that India will gradually become the number two market for outbound travellers to the world. People tend to think that the Indian traveller is not a big spender, but that’s not true,” Agoda CEO Omri Morgenshtern told the daily.