The Indian hospitality and tourism industry, which was pegged at US$ 136.2 billion at the end of 2016, is one of the sectors which will see major changes post GST with effect from July 01, 2017.
The Tourism and Hospitality industry in India is expected to grow to US$ 280.5 billion by 2026 and the initial hiccups after GST implementation are highly unlikely to impede this growth.The growth rate of the tourism sector of Indian economy was recorded as 17.3% in the previous year.
The implementation of GST will help the sector by reducing costs for customers, harmonizing taxes, and reducing business transaction costs, but will also have its own set of challenges says CA. Rajan Bhatia, an expert in GST in Tourism and Hospitality Sector and Founder and Director, GlobalCFO.in
There are several key issues in GST affecting Tourism industry. It is therefore necessary to understand certain new terms under GST like location of supplier of services, location of recipient of service and place of supply and many more. Tourism industry supplies bundle of services and hence definition of mixed supply of services, and composite supply of services needs to be understood.
Also, the key factors under GST is ease of availing input tax credit and therefore it is necessary to understand the definition of input tax, input, input service, capital goods to understand the allowability of various taxes paid on inward supplies.
Since the definitions of input service, input, capital goods are simplified; it enhances the scope of input tax credit and will result into the substantial savings of tax credit in respect of capital investments and inputs which was not available in earlier regime.
Pre GST, the hospitality sector like every sector was subject to pay multiple taxes like VAT, Service Tax, luxury Tax under the Previous VAT regime. Hoteliers and Hospitality Business earlier did not get any input tax credit on the taxes they paid, as central taxes like service tax could not be against state taxes ( VAT) and vice versa.Under the Goods and Service Tax, the hospitality sector stands to reap the benefits of standardized and uniform tax rates, and easy and better utilization of input tax credit.
In the current eco system of tourism and hospitality, most of the business in this sector gets generated through online mediums. Significant amount of clarity is required in the existing laws to deal with e-commerce players and aggregators.
Service providers having centralized registration will have to get registered in each state from where they provide service. A service provider catering to customers from different states will have to opt for registration in each such state.
The passing of the GST bill is a great step forward and establishes a uniform tax structure which will allow the free flow of goods across the country and should have a positive economic impact. However, it’s too early to predict the overall effect of GST on the common man.
The rates in hospitality sectors are too complex and high. The GST rates for non-AC restaurants are 12% GST on food, for AC restaurants and those with liquor licence including five star hotels restaurants at 18% per cent.Hotels and lodges charging per-day tariff of Rs.1,000 will be exempt from GST, while those charging up to Rs.2,500 per day will pay 12%. Hotels charging Rs.2,500 to Rs.7,500 will pay 18%, and those with per-day tariffs above Rs.7,500 will be levied GST of 28%.Government efforts to keep the rates Restaurants with Rs. 50 lakh or below turnover at 5 per cent is a welcome move. A lower tax rate for budget hotels sector will ensure that the industry’s quality upgrade continues while delivering standardised accommodation to millions of middle- class travellers. Currently lower budget hotels make up about 80 percent of the hospitality market in India.This will also save and create thousands of new jobs, which could have been impacted by higher tax rates.
GST is a mixed bag of better and easier rules and regulations, and increased costs and compliances.A lower rate will bring in more tourists and allow Indian businesses to compete with global chains.
Rajan Bhatia
Founder and Director, GlobalCFO.in