Local travel cos' bookings will plunge with TCS rate hike: Thomas Cook head

In a Q&A, group chairman Madhavan Menon says he sees business moving to overseas companies, which in itself will impact the tax collection opportunity for the govt

Travel companies have reported strong results in the December quarter and are seeing a surge in demand for summer packages. The proposed increase in the tax collected at source (TCS) rate on overseas holidays could prove to be a dampener for local firms, as it will force people to book directly from overseas. Thomas Cook India chairman and managing director Madhavan Menon shares his thoughts on these issues with Aneesh Phadnis:

Thomas Cook India reported its third successive profitable quarter. What are the booking and demand trends for the summer of 2023

Our demand pipeline is robust for the upcoming summer season and we have had a 50 per cent uptick in demand across our leisure segments. In Q3FY23, our holiday segment grew by a staggering 98 per cent YoY, surpassing pre-pandemic levels. Easy-visa destinations continue to see strong demand from India’s metros and mini metros This includes newer/emerging destinations like Vietnam, Cambodia, Baku and Almaty. Europe continues to be a favourite for Indians. We were quick to anticipate demand, and introduced a unique inaugural offer as early as November 2022--a complimentary 3-night luxury cruise experience on our European tour. This is seeing a strong uptick.

On a consolidated basis how much does outbound contribute to the group’s business. What impact do you see on revenue and margins with the government proposing a hike in TCS rate from 5 per cent to 20 per cent?

On a standalone basis, our income from the outbound segment contributes to about 28 per cent of our travel business. On a consolidated basis, our income from the outbound segment contributes to about 20 per cent. The impact of 5 per cent TCS for overseas tour packages was moderate, since customers viewed this as an inconvenience--but it wasn't a deal breaker. The proposed TCS hike to 20 per cent, however, will increase the upfront cash outflow for end-customers and lead to the procedural challenge of claiming it back from the tax department. Consequently, customers will move away to alternate channels in some form, with people making payments directly to overseas suppliers, online bookings with foreign portals, etc, effectively taking these out of the domestic tax net completely. This will put local tour operators at a significant disadvantage as compared to overseas travel agencies, as the latter neither charge TCS nor GST.

The cost of overseas holidays is already at an all-time high due to high airfares and hotel charges, coupled with a depreciating rupee.  

From the end-customer viewpoint, the 15 per cent increase in TCS (over the current 5%) will make an already inflated overseas holiday much more expensive and lead to a sharp drop in the number of transactions with local tour operators. This will effectively reduce the tax collection opportunity for the government.

Will you slow down investments including opening of franchisees?

We're bullish on the India market and our hybrid omni channel “clicks & bricks” model is helping us push the envelope in targeting new viable source markets. In addition to our accelerated digital first strategy during the past three years, we have restarted investment in our retail network expansion. We are seeing a significant opportunity in tier-2 and 3 cities, and this is reflecting in our increased presence. With the easing of restrictions, we have opened 38 leisure and forex outlets across the country. This a mix of franchise and owned locations, with the most recent outlets being in Mangaluru, Ludhiana, Navi Mumbai, Kolkata, Bengaluru and Salem.