How GST Will impact the Hotel and Travel Industry in India

The hotel industry is one of the fastest-growing domains in India, and, together with the travel segment, it was valued at $136.2 billion by the end of 2016. The implementation of Goods and Services Tax (GST) will help the hotel and travel industry largely by bringing down costs for customers, consolidating the multiple taxes into a single tax value, and decreasing transaction costs for concerned business owners. However, certain challenges accompany these outcomes as well. A look at the conditions pre- and post-GST Similar to other industries in India, there were multiple taxes applicable to the hotel industry. These were chiefly in the form of value-added tax (VAT), luxury tax, and service tax. For a hotel, if a room’s tariff exceeded Rs 1000, the service tax liability was 15%. With an abatement of 40% allowed on the tariff value, the actual rate of service tax was brought down to 9%.

The VAT that ranged between 12% and 14.5%, as well as the luxury tax, was applied over and above this. The GST impact on hotels and travel industry  Under the GST regime, the hospitality domain gets the advantage of standardized and uniform tax rates. The utilization of input tax credits (ITC) has also become simpler and better. Complimentary food (such as an offer of breakfast with room) that was separately taxed under VAT will be taxed as a bundled service under the GST system. As a positive effect of GST for hotels, the end cost to be paid by the final consumers will decrease, which will help to attract more tourists and push up the growth of businesses in this industry. Conversely, it will also increase the revenue collection of the government. The tax rates under GST for the hotel industry have been set as:

Most hotels in India follow a dynamic pricing policy, where they decide upon the tariffs manually as per the number of tourists expected in a certain season. The tariff, therefore, keeps changing according to the demand and supply forces. Since the GST rates vary for different tariff levels, hotels have to ensure that their billing software also changes the tax rate as per the room tariff throughout the distribution channels comprising travel agencies and online aggregators. Making such changes in the billing systems could take some time. Positive aspects of GST The Goods and Services Tax has brought some relief for the hospitality industry through:

• Ease of administration: With the implementation of GST, the multiple state and central taxes levied on the tariffs of hotels have been done away with. This has helped to trim down the burden of different procedures of tax application and has resulted in better streamlining of the entire process. Less confusion for customers Tourists staying in hotels and availing some special services were largely confused by the multiplicity of taxes in their bills. For most of them, it was difficult to understand the difference between VAT, service tax and luxury tax. Under the GST system, they will see only one consolidated tax on their invoice, which will give them a clearer picture of what they are paying in tariffs and what is the tax charged on them.
• Enhanced quality of service: Many tourists and hotel guests have had the cumbersome experience of waiting in the hotel lobby while their bill was being prepared. It often took longer to add the different tax components and prepare the final version of the bill to be paid by the customer. With GST, the managers have just one tax to calculate and that makes the checking-out process from hotels quicker and simpler.
• Ease of using input tax credit: Entities in the hotel and travel industry can now easily claim and get input tax credit. They are entitled to get full ITC (input tax credit) on the inputs that they add. Due to the division of revenue between the centre and state governments, the multiple taxes paid before GST regime on inputs – like cleaning supplies, uncooked edibles for meals – could not be smoothly adjusted against the output. The calculation of ITC will be easier in the GST system.
• Negative aspects of GST: The GST for travel industry and hotels also comes with its share of adverse impacts. With a taxation rate of 28%, the hotels charging tariffs over Rs 7500 are worst hit, as their final prices for customers will increase significantly.

Looking at the bigger picture, GST can hit the inflow of foreign tourists to India. Other Asian countries such as Japan and Singapore impose tax rates as low as 8% and 7% on their hotel and travel industry. This can become a big factor in making them more preferred tourist locations as compared to India.

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mehar

May I know the author of this article? I working on a research paper titled "Impact of GST on the hospitality industry". For citation, I need to know the name of the author of this article. Please do revert. Thank you.