Service tax query stumps online portals

Can online travel portals such as MakeMyTrip be considered travel agents or hotels? This question is at the heart of an ongoing tax dispute between portals and the service tax department.

While portals pay service tax as an intermediary or an agent for facilitating airline ticketing and hotel bookings, the service tax department has raised a query whether these are liable to pay tax as 'hotel service providers.'

The liability of online travel portals will increase if they are categorised as hotels for taxation purpose as the tax amount is levied on the booking amount paid to hotels. The tax amount, however, is recovered from customers.

MakeMyTrip has decided to challenge the service tax department's stance, but sources say it has deposited Rs 10 crore with the department.

"At MakeMyTrip, we strongly believe in an ethical, transparent and compliant corporate culture and we abide by all laws and regulations of the country. The service tax case in question is potentially an industry issue that can impact all online travel agents. We have a strong case as advised by our tax advisors and, therefore, will be contesting the matter with the appropriate authorities. We are extending our full co-operation to the authorities in the investigation," the company stated. According to sources, online portal Yatra.com, too, has received queries from the tax department on similar issue but no demand has been made or notice has been served to it. Online travel agents are focusing on hotel bookings, which provide better margins than air ticketing and almost all companies are looking to grow share of hotel business.

MakeMyTrip has set a target of doubling its market share of the online hotel booking space to 50 per cent over the next two years. The Nasdaq-listed company, which raised an investment of $180 million from Chinese travel major Ctrip last week, plans to deploy significant funds to expand the high-margin hotel booking business.