How will the Destination Based Tax Change your Holiday Destination Plan? GST & Its Impact on Hospitality Industry…

The Goods & Services Tax, the non-discriminatory, destination based tax system will impact the Indian Hospitality industry in different ways. With the implementation of GST, one can expect transparency, harmony in taxes in the hospitality sector, reduced cost to customers and business transaction costs for owners.

The impact of GST on hospitality industry and your next holiday plan is inevitable. You may find luxury coming at a bigger price and you may end up compromising on that luxury hotel stay. However, before we go ahead, let’s have a quick preview of hospitality industry under the previous tax regime.

Previous Tax Regime & Hospitality Industry

Under the previous tax regime, there were multiple taxes levied, including Luxury Tax and VAT, which were levied by State government and Service tax, levied by Central government. And making the process more cumbersome was the fact that this VAT varied from state to state. The Vat rates were around 12% to 14.5%, while the average luxury tax, which is influenced by the room tariff is around 8% to 10% . Adding to this, any hotel room tariff, in excess of INR 1000 attracted Service tax at 9% (40% Abatement). For Food & Beverages in restaurant, service tax was 6% (60% abatement) in addition to the VAT amount levied.

Thus the combined effect of VAT, luxury tax and service tax, borne by end consumer was around 20-27% with limited scope to claim the input tax credit against the VAT liability.

GST Regime & Hospitality Industry

With the implementation of the GST, the hospitality industry benefits with a uniform taxation system and reaps easy input tax credit advantage, as well. Below mentioned are the GST rates on hotel stay.

GST Rates on Hotel Stay

*Accommodation in any hotel, including 5-star hotels having declared tariff of a unit of accommodation of upto INR 7500 per unit per day, will attract GST @ 18%. Therefore, Star rating of hotels is irrelevant for determining the applicable rate of GST.

Hence due to GST, the final cost to end consumer will also reduce, which will further help attract more tourists in the country, boosting the growth of the tourism sector, with increased government revenue Further, every service offered by Hotels & Restaurants, will be treated as “Supply” and GST will be applied on it to benefit the end consumer. The below table will help give a better understanding.

Hotel Stay Before & After GST (KARNATAKA)

Hotel Stay with Complimentary Breakfast (MAHARASHTRA)

Luxury Hotel Stay with Lunch (KERALA)

Hence with GST, the net cost of affordable hotel stay would come down. But still, the biggest challenge is with the GST rates which does not benefit India in the Asian tourism and hospitality market, overall. As compared with other Asian counterparts, the tax slab remains quite high, which can work against this sector in the long run. For instance, Japan levies 8% tax rate in the hospitality sector and Singapore charges 7%, which definitely puts India at a weak spot for now.

With GST coming into effect, there is uniformity in taxation facilitating administration easiness and better clarity for consumers. It will be a simple breakup, which will be easy for the common man to comprehend. Likewise, the hospitality and tourism industry players, will be able to easily claim their input tax credit benefit. Earlier, claiming the input tax credit on raw materials was a cumbersome process, but with GST it will be simple.

The Indian Hospitality & Tourism industry is expected to grow rapidly by 2024. However, such high rate of GST may tend to work against the growth story. Keeping that aside, GST brings its own share of benefits to the consumers with reduced costs and to the Industry with boost in demand and increased profits. But if the rate is revised and reduced, it would work for India’s growth story in the Asian sub-continent.

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