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:

  • Value Added Tax (VAT).
  • Luxury Tax.
  • Entertainment Tax.
  • Excise duty on liquor and tobacco.

2. Central Taxes:

  • Service Tax.
  • Customs duty.
  • Excise duty.

 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.

  • The multiple taxes would be replaced by one single tax, the rate of which is likely to be between 18%-20%. The hotel industry would benefit in the form of lower tax rate which should help in attracting more tourists in India.
  • It is still very difficult to differentiate between a Value Added Tax and an entertainment tax by the common people in their bills. However, under GST regime customer will going to see only a single charge on their bill and it would give them a clear picture of the cost they are incurring for the goods and services.
  • The riddance of a lot of entries from the book of accounts of any hotel in the name of several taxes means minimum time to process a transaction. This will also result in faster and fresher service to the customers and the reservations process will become an easy breezy process
  • There are likely to be concerns in valuation of restaurant services in view of the industry practice of discounts / offers / policies in the form of incentives. The proposed valuation rules are different from the existing ones and as such this sector need to frame an appropriate policy for such discounts in advance.
  • Service providers having centralized registration will have to get registered in each state whether providing hotel services on own account or through agent (franchise).
  • Service providers will have an option to take different registration or separate business verticals which needs to be examined on case to case basis.
  • The procedure for all the invoices / receipts towards inward and outward supplies will become cumbersome as each one of them will have to be uploaded in the system.
  • With the implementation of GST, it may lead to price hike in some product and service cost. For an example, a service along with abatement results in 18-20 percent will be charged as 18% under GST and hence will increase the price.
  • The frequency and number of returns to be filed will go up.
  • There is a provision for GST audit if the turnover is more than the prescribed limit.
  • The e-commerce companies may have to revamp the current models, as the VAT rate arbitrage available in the current law may not be available in GST. Tax Collection at Source (TCS) provisions have been introduced on ecommerce operators in the GST Law. However, there are no provisions relating to collection of tax at source under the current tax regime.
  • Alcohol and electricity are out of the purview of GST net. The taxation on alcohol would be different than the single GST rate. Thus, the hotel industry would not be able to avail the input credit on the two items which will have a negative impact on this sector.

Key Points:-

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.

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Qualification: CA in Practice
Company: kapil goyal & Associates
Location: delhi, New Delhi, IN
Member Since: 20 May 2017 | Total Posts: 15

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