The tourism and hospitality industry is very diverse. It encompasses a variety of elements including food, entertainment, accommodation, and services like spa, yoga, etc. for the visitors/travelers.
Needless to say, there is a lot going on here, and now that the government has finally issued taxation slabs under the GST bill, the impact of the same on the tourism and hospitality industry would be a major one.
So, what are the exact changes that one must expect? Let’s find out
In the current taxation system, there are three main types of taxes that the hospitality industry has to pay:
- Value Added Tax, or VAT
VAT is usually applicable on food bills only. However, a hotel owner may include it with the room rent if the customer has also ordered food from them during their stay.
The rate of VAT varies from one state to another and is levied on the total bill amount (which may or may not include service charges). It typically ranges from 12% to 14.5%.
- Luxury Tax
The Luxury tax is levied on the room rent and just like VAT, it varies from one state to another. The rate also varies on the basis of the rent a hotel charge per day. For instance, for a hotel in Delhi, there is no luxury tax applicable if the rent per day is less than Rs. 750. However, a rate of 3% is applicable if the rent is higher than Rs. 750 but lower than Rs. 1000. Similarly, a 10% rate is applicable if the rent is higher than Rs. 1000.
- Service Tax
Hotels where the room rent is more than Rs. 1,000 per day a service tax of 15% is applicable. However, a relaxation of 40% if allowed which makes the actual tax about 9%. Service tax is also applicable on food and beverages served in the hotel. However, they are two separate categories with two different rates.
Industry After GST
One of the biggest problems that the hospitality industry has been facing since a long time is the bifurcation of goods and services. This is because hotels tend to offer service (rooms for rent) and goods (food and beverages) both. However, GST will bring standardization and uniformity by considering goods and services as the same.
Since GST has the provision for ITC (Input Tax Credits), the hospitality industry will be able to offer lower rates, and it will help attract more tourists in comparison to other neighbor countries.
With multiple taxes subsumed into one, calculation of taxes will become easier. Moreover, tourists will see only a single tax on their bills, which will help them get a better idea of what they are paying for. They will also save time as preparing bills will be easier.
Even though the government is certain that GST will have a positive impact on the hospitality industry, many people are rather upset. The following are some of the reasons why:
Varying Tax Liabilities
The GST Council has set a GST rate of 18% for air-conditioned restaurants and 12% for non-air-conditioned restaurants. A 12% rate has been fixed for hotels when the room rent is between Rs. 1,000 and Rs. 2,500. 18% when it’s between Rs. 2,500 and Rs. 5,000, and 28% when it’s higher than Rs. 5000. Thus, while the rate burden is reasonable for the budget hotels, for the luxury hotels it could be a lot.
Increased Competition with Other Countries
The tax rates in other popular tourist destinations in Asia are quite low. For instance, in Singapore and Japan, the tax rates are 7% and 8% respectively. However, the lowest tax slab for hotels in India is fixed at 12% which could put a dent in the country’s tourism industry.
At this point, it’s unclear how GST will impact the tourism industry exactly. While it may bring a financial challenge for the luxury hotels, the budget hotels that are paying a high tax under the current regime may benefit from the fixed 12% rate. At any rate, GST will make taxation simpler, transparent, and easier. For the actual results, however, we will have to wait and observe.