The Indian hospitality and tourism industry, which was pegged at US$ 136.2 billion at the end of last year, is one of the sectors which will see major changes after 1st July 2017. Experts observe that the implementation of GST will provide an edge to the sector by reducing costs for customers, harmonizing taxes, and reducing business transaction costs.
Hotel Sector in India is presently covered as one of the priorities of the Government and as such is allowed tax relief in the form of abatements vides N.No. 26/2012-ST dated 20.06.2012. Presently, the hotel industry is plagued by multiple of taxes i.e., Service tax, luxury tax and VAT which ultimately results into cascading effect. The three taxes that are levied are the VAT and luxury tax by the States government and service tax by the Centre government. The VAT rate varies from state to state, luxury tax depends on the room tariff and the state (generally varies from Nil to 12%). Similarly, service tax varies on the type of service. For hotels with room tariff in excess of Rs 1,000 and above, service tax is applicable at 60% of room tariff in addition to VAT (ranging between 12 to 14.5%) and luxury tax wherever applicable. In case of restaurants on the F&B bills, service tax is applicable on 40% of the bill or effective rate of 5.8% apart from VAT @ 12 to 14.5%. In case of social functions (marriage, seminars etc.) the applicable service tax rate after 30% abatement is 10.5%. When the VAT, service tax and luxury tax are combined, the total impact goes up and lies between 20 to 27 percent. As input credit from central taxes cannot be set off against VAT liability and vice-versa, this leads to cascading effect. The present rate of service tax is 15% including cesses viz Swachh Bharat Cess (SBC) and Krishi Kalyan Cess (KKC).
.Indirect taxes pertaining to the Hotel Industry under present System:
1. States Taxes:
2. Central Taxes:
Hotel Industry under the GST Regime:
Under the Goods and Service Tax (GST), the hospitality sector stands to reap the benefits of standardized and uniform tax rates, and easy and better utilization of input tax credit. As the final cost to end user decreases, we can expect the industry to attract more overseas tourists as compared to our neighbors. This would ideally result in improved revenues for the government. There are no specific provisions for inclusions or exclusions of hotels and restaurants services or any other activity related to hotels / restaurants elsewhere in the proposed law
Based on the provisions of GST Law, it can be said that hotel sector shall be impacted both positively and negatively under the GST regime.
⇒ Hotel Industries will have to get registration in each state.
⇒ No input tax credit on alcohol and electricity consumption.
⇒ Tourisms will be increase due to lower of taxes.
⇒ Eating in the restaurants may b cheaper.
⇒ Time saving and improved quality.
⇒ Administrative ease due to eliminate various taxes.
⇒ Technological burden.