Introduction

Tourism represents world’s third largest export avenue in terms of global earnings after fuel and chemicals. Modern tourism is closely linked to socio- economic development. Tourism is responsible for one out of 11 jobs and 10% of the world’s economic output. Apart from providing employment, income and foreign exchange for the country, the trade in the tourism sector has an economically positive impact on other associated industries such as food manufacturing, services, construction, agriculture, handicrafts etc

Hospitality is not only a high foreign exchange grosser, it is also among the largest tax generators. There are multiple taxes charged on the same Service/ Product offering by the Central as well as State Governments. It is an understanding that the Taxes levied on Inbound Tourism is among st the highest in the country, and this is one of the major reasons for India losing Foreign Tourists to competing South East Asian Countries.

HIGHLIGHTS OF NEW GST RATES:

  • Restaurants with a turnover of less than Rs 50 lakh will be levied a tax rate of 5 percent.
  • Non-AC restaurants will have a 12% tax rate. AC restaurants will have to shell out 18% tax.
  • Hotels, lodges with tariffs less than Rs 1,000 will be taxed at 0%.
  • Hotel lodges with tariffs between Rs 1,000 – Rs 2,500 will be charged 12% tax
  • Hotel lodges with tariffs between Rs 2,500 – Rs 7,500 will be charged 18% tax
  • Hotel lodges with tariffs above Rs 7,500 will be charged 28% tax

BIRD EYE VIEW OF GST RATE IN TOURISM INDUSTRY

S. No. Services Rate of Tax under GST
1. Services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes, having declared tariff of a unit of accommodation less than one thousand rupees per day or equivalent Exempted Services.
2. Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having room tariff Rs.1000 and above but less than Rs.2500 per room per day. 12%
3. Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes where room tariff of Rs 2500/ and above but less than Rs 7500/- per room per day. 18%
4. Accommodation in hotels including 5 star and above rated hotels, inns, guest  houses, clubs, campsites or other commercial places  meant  for  residential or lodging purposes, where room rent is Rs 7500/- and above per night per room. 28%
5. Supply of Food/drinks in restaurant not having facility of air-conditioning or central heating at any time during the year and not having license to serve liquor. 12%
6. Supply of Food/drinks in restaurant having license to serve liquor. 18%
7, Supply of Food/drinks in restaurant having facility of air-conditioning or central heating at any time during the    year. 18%
8. Supply of Food in catering service 18%

GST IMPACT

Tourism sector shall be impacted both positively and negatively under the GST regime.

Positive

1. Uniformity in Taxes

The multiple taxes would be replaced by one single tax, the rate of which is likely to be between 16%-18%. The sector may benefit in the form of lower tax rates which should help in attracting more tourists in India.

2. Increased Revenue for State Government 

  • Under GST the place of supply is shifted to the place where immovable property is situated in case of Hotels, Restaurant & Monuments for sightseeing. This will increase the revenue of such states where immovable property is located. Currently, on such income, States charges local Luxury Tax on hotel stay and VAT on food supplied. While Union Government gets revenue from Service Tax on such services. Because of GST, the States having maximum tourist places, hotels or restaurants for tourist shall earn the maximum revenue by way of SGST which will be equivalent to CGST.
  • In the case of Passenger traveling, the state with the maximum outbound journey shall earn the highest revenue so the station or the port having highest outbound flights, train journey or local cab journey shall earn substantial revenue.

3. Saving in Food and Beverage operations

Companies specializing in food and beverages operations could be the biggest beneficiaries of GST within the hospitality sector. Food and beverages bills have multiple components which inflate the bills by 30- 35%. It is expected that GST to result in savings of 10-15% on the overall bill.

Negative

1. Multiple Registration

Service providers having centralized registration will have to get registered in each state from where they provide services. Although Government has been claiming “One Nation One Tax”, practically it is not going to be so. Service providers will have an option to take different registration for separate business verticals which need to be examined on a case by case basis.  Every state has been constitutionally granted right to collect GST on services.

2. Increased Compliance Burden

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. The concept of credit matching under GST would be very difficult to handle and would lead to increase in working capital requirements.

The frequency and number of returns to be filed will go up. In place of a half yearly service tax return, under GST law, one will be required to file state wise monthly three GST returns along with an annual return will also be required to be filed.

3. No Credit on Work Contract Services

The hotel industry spends a lot of money on construction and renovation. The money paid as taxes on the works contract services when supplied for construction of an immovable property is not allowed for this sector when such services are not used for the further supply of works contract service. This would have a negative cascading effect despite strong promises being made by the government in this regard.

Any proposal to make supplier of goods or services liable to pay tax under reverse charge when receiving supply from an unregistered supplier can increase burden in case of B2B transactions on registered assessee.

4. Liquor not included

Liquor should have been included in GST to ensure the seamless credit for the tourism industry. Exclusion of liquor from GST regime defeats the very purpose of bringing in a uniform tax structure across the nation. 

IMPACT ON CONSUMERS

In Pre GST era, there was a composite levy of both Service tax i.e 6%, as well as, Value Added Tax i.e 14.5% (Vary from State to State) on food and beverages served by hotels and restaurants which finally put the burden of 20.5% in the pocket of ultimate consumers. However, some relief was provided for Non-AC Restaurants supplying food and beverages as no service tax was levied on these restaurants.

Post GST, the scenario shall be completely different. As discussed above that supply of food and drinks in a restaurant shall be treated as a supply of services. Hence, only GST shall be levied on such services @ 18% which saves around 3% as compared to the previous regime.

Erstwhile, Non AC Restaurants were exempt from levy of Service Tax. But State vat was charged at 12%. In Present System, Restaurant not having the facility of air-conditioning or central heating at any time during the year and not having a licence to serve liquor is liable to tax at GST Rate of 12%. Overall things shall continue to remain status quo as far as pricing goes.

Further, staying in a good hotel is going to be very costlier as the rate of tax has been doubled from 9% to 18%. Even Luxury Hotels of 5 stars or above-rated charging room rent Rs. 7,500/- or above will attract 28% tax.

CONCLUSION:

GST is going to be an efficient and harmonized destination-based tax system and will remove the problems faced by the sector leading to cost optimization and a free flow of transactions.

GST is a glimmer of hope for the Hotel and Tourism Industry if we can keep the GST rate between 10 to 15%. GST might herald with its uniformity of tax rates, a better utilization of input credit which in turn benefits the end user in terms of affordability.

About the Author: Karan Sahi is a Lawyer and Company Secretary by profession. He is presently working on SAAS Cloud Startup Firmsap (Compliance through Technology ) and Linking Tribes (Consulting and Media Firm)  .  Author can be contacted at karan.sahi619@gmail.com

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4 responses to “Complete guide on impact of GST on Tourism industry”

  1. Rajiv Gupta says:

    Dear Karan,Your article though is good and knowledgeable, but if you also add the impact on tour operator it would be more adequate. Because GST is become very harsh on tour operators with 5 % GST from 1.5%, a hike of 333% in the tax rate with no ITC. Also note that this is the only service with Taxis too among all others thousands of services which have no ITC

    • Karan.sahi619 says:

      Hi Rajeev
      I can understand your grief. Erstwhile, Services by a tour operator in relation to,-
      a tour, only for the purpose of arranging or booking accommodation for any person was chargeable at abated rate of 1.5%. if the tour operator was providing service more than booking for customers, it was chargeable at abated rate of 4.5%. Credit

      Subject to the condition that CENVAT credit on inputs, capital goods and input services other than the input service of a tour operator, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.

      Present provision is bit harsh. There is a lack of clarity on outbound travel as well.
      It is expected that outbound travel taxes will go up by 5 per cent with a cascading effect. There would be a tax on tax with respect to hotels and airlines which are already taxed as part of the packages.

  2. ranjan chakraborti says:

    Tour operator services . How can they get ITC?

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