IMPACT OF GST ON HOSPITALITY AND TOURISM INDUSTRY
The Goods and Services Tax Council has finalized different Goods and Service Tax rates for hotels and tourism based on their tariffs and turnover, drawing mixed reactions from the industry.
THE CURRENT SITUATION:
In the existing indirect tax regime, the hospitality industry, like every other sector in the Indian economy, pays multiple taxes:
- luxury tax, and
- service tax.
A hotel where the room tariff exceeds Rs 1,000 is liable for service tax at 15 percent. An abatement of 40% is allowed on the tariff value bringing the effective rate of service tax down to 9%. The Value Added Tax ranges from 12 to 14.5%.
However, for restaurants there is 60% abatement which means that the service tax is charged at an effective rate of 6%. And VAT ranging from 12 to 14.5%.
For bundled services like social functions (seminars, marriage etc.), are tax is with an abatement of 30%.
UNDER THE GST REGIME:
- Small restaurants with an annual turnover of less than Rs 50 lakh will be taxed at 5%
- non-air-conditioned restaurants will be taxed at 12 %,
- while air-conditioned restaurants will be taxed at 18 %.
- Hotels and lodges will a tariff below Rs 1,000 a day will be exempted from GST.
- But those with a room rate of between Rs 1,000-Rs 2,500 will be taxed at 12 per cent% and
- those with a tariff of Rs 2,500-Rs 5,000 will attract 18 % tax.
THE PROS OF GST:
- Administrative Ease
GST will abolish several other taxes, leading to a reduction in procedural steps and more chances to streamline the taxation process.
- Clarity for Consumers
Under the GST regime customers will see only a single charge which they are paying unlike, the present system where it is very difficult to differentiate between a Value Added Tax and an entertainment tax for the common man.
- Improved Quality of Service
With just one tax to compute, the checking out process at hotels and restaurants will now become easier.
THE CONS OF GST:
- Certain Taxes will be still applicable:
Taxes like Value Added Tax, Luxury Tax will be applicable along with the Goods and Service Tax.
- Increased Technological Burden
Under GST regime, every industry shall file returns and manage their accounts. This will further require businesses to become technologically adept, increasing the technological burden and cost for compliance.
- Increased Costs
For example, in state of Maharashtra, hotel rooms are taxed at 19% and food and beverage at 18.5%. Even with GST charged at 18%, there is minimal cost reduction in both cases.
- Lack of Parity with Asian Counterparts:
The GST system lacks parity in this regard. India’s Asian neighbors such as Singapore and Japan have very low tax rates for their hospitality sector as 7% and 8% respectively which is an important reason for them ranking high on tourist wishlists.