GST: Effect On The Indian Hotel And Tourism Industry

The Goods and Services Tax (GST) was rolled out in India on 1 July, 2017 with the aim to overhaul the nation’s serpentine and convoluted taxation system. GST took the place for 17 central and state taxes or Value Added Tax (VAT) and 23 cesses to help develop a bring the market together for the $2 trillion Indian economy. Contrary to the erstwhile principle of origin-based tax, the new tax system is a destination-based tax mechanism. GST is based on a multi-stage collection process wherein tax is collected at each stage. Additionally, the input tax credit for the tax collected at the previous stage is made available as a set-off at the next stage of transaction. This taxation apparatus does away with the phenomenon of ‘tax on tax’. It must also be noted that GST is divided into three types: Central GST (CGST), State GST (SGST), and Integrated GST (IGST). While the first type is imposed by the Centre, the second is charged by the States, and the third is collected by the Centre on inter-state supply of goods or services. Suffice it to say that the new Indian tax regime a.k.a. GST has affected various industries to varying degree due to its many provisions. One of these industry is the Indian tourism and hospitality industry.

Goods and Services Tax

The hospitality and tourism industry is commonly referred to as one of the primary divers of the country’s economy. And rightly so, especially when you consider the growth of the enterprising middle-class families in India and the rise in their disposable income. According to a KPMG report released earlier in 2017, this sector was valued at nearly Rs. 986.2 thousand crore in 2015. It currently accounts for 7.5 per cent of the national GDP, and is expected to grow at 16.1 per cent Compound Annual Growth Rate (CAGR) to Rs. 2,796.9 thousand crore by 2022. Though the prospects of the hotel industry remain virtually unmatched by any other industry, it has also been among the most taxed sectors in the country. Under the previous tax regime, multiple cascading taxes such as VAT, service tax, luxury tax, etc. translated into a tax rate of 20-30 per cent, which would cripple operational costs and depleted the profits.

tourism and hospitality industry

After the new system’s launch earlier in July 2017, the GST Council introduced a rate cut that became applicable since 15 November, 2017. Here’s a lowdown of the latest GST rates applicable in the hotel industry:

  • Hotels and lodges with tariffs less than Rs. 1,000 per day will pay 5 per cent GST.
  • Hotels and lodges with tariffs less between Rs. 1,000- Rs. 2,500 per day will pay 12 per cent GST.
  • Hotels and lodges with tariffs less between Rs. 2,500 – Rs. 5,000 per day will pay 18 per cent GST.
  • Hotels with tariffs more than Rs. 5,000 per day will pay 28 per cent GST.

While it may not be feasible to precisely point out the impact of GST on the hotel industry, but based on the most recent GST rates, it becomes amply clear that budget hotels benefit the most from the new tax regime, while mid-category and luxury hotels that find themselves in the 18-28 per cent GST slab will most likely bear the brunt of the country’s new tax policy. But this won’t necessarily translate into the high-end hotels taking a hit, at least not right away. Yes, travellers will indeed flock to budget hotels for economic accommodation but this will be applicable only to the budget-conscious holidaymakers. Though it may not have brought much cheer in this particular sector, it is important to note that the GST regime has been proclaimed as an initiative that will drive the hospitality industry to enhance its services at regulated rates.

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