Goods and Services Tax (GST) is finally being rolled out on July 1st, after a lot of hype and some rumours about delay. Under the existing indirect tax regime, the hospitality industry, like every other sector in the Indian economy, pays different taxes such as VAT, luxury tax and service tax. Now, with the imposition of GST, probably the biggest tax reform India will see post independence, everyone will be liable to pay a flat percentage of tax, depending upon the industry type. Read further to know what it really means for the frequent Indian traveller:
GST impact on hotel bookings
Under the GST rates announced, a luxury hotel stay will be charged up to 28 per cent. However, a relief comes for budget accommodation as hotels and guesthouses charging per day tariff of INR 1,000 will be exempted from GST. Here is more specific info on the same:
- Up to INR 999: Tax free
- INR 1000-2,499: 12%
- INR 2500- 4,999: 18%
- INR 5,000+: 28%
GST impact on flights & train tickets
Economy class air travel will become cheaper whereas business class will become dearer. Similarly, non AC travel in trains will not be affected while ticket prices for AC trains will go up marginally.
- Economy class: 5 %
- Business class: 12 %
- Non AC train tickets: Tax free
- AC train tickets: 5 %
GST impact on eating out at restaurants
The tax slabs for restaurants differ depending on whether they have AC or not. It will get costlier in metropolises like Mumbai where the current tax rate, including both VAT and service tax in an AC restaurant, is 10.6 per cent. Under GST, customers will be levied 18 per cent of tax.
- Non AC restaurants: 12 %
- AC restaurants with liquor license: 18 %
- Restaurants in 5-star hotels: 28 %
GST impact on movies, theme parks, etc.
Under the new regime, tickets for theme parks, movies and various sports events will attract 28 per cent tax. Though it will go lower as the current tax percentage is between 30-50 percent in different states, the government plans to increase tax on packed food items and aerated drinks.
What Experts Say
According to Garish Oberoi, the Vice President of Federation of Hotels and Restaurants Associations of India (FHRAI), “The initial reaction is of great despair…28 per cent would be the end of the industry”.
Expressing similar opinion, the former-President of Hotel and Restaurant Association of Western India (HRAWI), Bharat Malkani said, “One of the biggest hurdles for Indian hospitality and tourism, in terms of attracting international tourists is its uncompetitive tax structure”.
GST is the biggest reform this year, says Prof. Neeraj Hatekar, who teaches Economics at the University of Mumbai. He predicts that GST will create a common market for goods and services, reduce the aggregate tax burden as tax on taxes is being done away with. “We should not worry about the inflationary impact; it’s not going to be much. It will increase economic activity in the economy leading to more jobs, more activity and faster growth. Hence, in the long run it will positively affect the common man. All industries should be happy with this reform.”
However, its arrival is seen as the final blow to India’s tourism industry, which is still trying to emerge from the after-effects of demonetization and blanket ban on liquor shops along nation’s highways.
Pros and cons
The Pros of GST
More Clarity for Consumers: A common man still faces issues differentiating between a Value Added Tax (VAT) and a service tax. However, with GST consumers will see only a single charge on their bill which would give them better clarity of the tax they are paying.
Prompt Service: Under the GST regime, rather than computing multiple taxes, the hotelier would have to calculate only one tax; thus the customer will not have to wait for long at the time of check-out.
The Cons of GST
Lack of Parity with Asian Counterparts: For India to become a better player in the tourism industry, it should have tax parity with its Asian counterparts like Singapore, Indonesia, Malaysia, Myanmar and Thailand, which have very low tax rates (between 5 to 10 %). As per travel experts, the government should reconsider the taxes to lure more foreign travelers who otherwise will skip India.
Increased Technological Burden and Costs: Whenever a new tax is introduced, there are a lot of confusions and mix ups. Though GST, thankfully, has quite clear guidelines for each industry, it will require businesses to become technologically proficient – leading to initial rise in compliance cost. Businesses then will acquire to recover the additional cost from their customers in terms of higher tariffs.