As we all know The Goods and Service Tax (GST) bill was passed in the Upper House of the Indian Parliament – The Rajya Sabha. To be implemented from 01st July 2017, A “one nation one tax” slogan which will replace the plethora of taxes levied under different names like service tax, value added tax (VAT), entertainment tax, cess etc. These various forms of charges will be combined to form a single tax i.e. GST
> GST will have a 4-slab structure of 5%, 12%, 18% and 28%.
> The hotel industry has been pegged at an 18% rate.
Let’s simplify this a little bit for you
> The hospitality and restaurant industry in plagued by multiple taxes (Service tax, VAT and luxury tax) in the current indirect tax regime.
> For hotels with room tariff in excess of Rs 1,000 and above, service tax is applicable at 60% of room tariff (9%) 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 6% apart from VAT @ 12 to 14.5%.
> As input credit from central taxes cannot be set-off against VAT liability and vice-versa, this leads to cascading effect.
restaurants with an annual turnover of less than Rs 50 lakh will be able to avail of a composition scheme and pay a flat tax of 5% (2.5% central GST and 2.5% state GST) as the GST Council decided to widen the ambit of this scheme.
Under GST, the largest advantage are:-
√ uniformity of tax rates and applicability of single rate,
√ better utilization of input credit and
√ benefits to end user in terms of lower prices.
There are some disadvantages also:-
√ Possibility of Increased Cost
Take the present taxes in the state of Maharashtra for example. The taxes on hotel rooms are currently 19% (Luxury Tax = 10% plus Service Tax= 9%) and those in the F&B segment are 18.5% (VAT= 12.5% plus Service tax= 6%). Compare these rates with the GST at flat 18%, you can see the benefits are not substantial, i.e., 1% and 0.5% savings for rooms and F&B respectively. Add the costs for new systems and accounting practices to be introduced due to the change in regulations, and the charges might surpass the benefit.
√ Increased cost affect competition from Asian Markets
Increased cost affect competition from Asian Markets, as Indian GST rates should match with those of its other Asian counterparts but they are nowhere close as you can see below:
Singapore = 7%
Malaysia = 6%
China = 11%
Japan = 8%
The wide gap affects our service providers and provides an unfair advantage to competitors. This alone could make a potential tourist reconsider their travel plans.
All in all, there are equal advantages and disadvantages, For now, this has become a ‘wait and watch’ game for all!
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Do you think CBDT should extend Tax Audit Report and relevant ITR Due Date? Please Comment, Vote, Retweet and Like.— Tax Guru (@taxguru_in) September 18, 2018