GST GST Impact On Tourism Industry

GST Impact On Tourism Industry

Initially, the impact of GST is sure to affect the hospitality industry, which is an important part of the tourism industry. However, it may prove to be beneficial for the industry in the long run. The benefits are expected to seek under GST regime, R&D cess to be payable on technical know-how and franchise fees will be reduced as one. This would result in the elimination of compliance procedures and multiple taxes.

For consumers, the GST will bring about a hike in prices when it comes to traveling and paying for hotels. But the same is likely to change and benefit in the long run. As the duplication of taxes will be avoided on airlines and hotels, the set-off amount through such taxes would fall back in the laps of customers; hence the customers would be likely to pay less than in the short run.

The taxes over the hotel and restaurant supplies which form the major component of tourism costs will likely to be subjected to single tax thus reducing the burden of cascading taxes, initiating flexibility and cost effectiveness to benefit travelers.

Impact of GST

1. Export of services definition

The Export of services does not include the hospitality and tourism sector as per GST Bill draft. Therefore, to be able to know the benefits in this sector, the definition needs to be updated.

2. Effect of taxes

The hotel and tourism industry are one of the industries which are levied with multiple of taxes. There are mainly three taxes involved i.e. the VAT and luxury tax by the state govt. and the Service tax by the central govt. The value of Vat tax varies from 12 to 14.5% according to state. The luxury tax varies from zero to 12% depending on room type and state whereas the service varies according to the type of service provided.

When all these three taxes are combined, the taxes go up to 20 to 27%. With the implementation of GST, the cascading taxes would combine and a single tax regime would reduce it to just 17 to 19%. The tourism and hotel industry will thus be benefitted as more tourists will visit India due to the low tax rate. However, as the luxury tax is not levied on all transactions, GST would be high or at par in such case.

3. Impact on electricity and alcohol

One of the worries of the hotel industry is the non-inclusion of electricity and alcohol tax in GST. There won't be a single GST for the same. Hotels are known to consume tolls of electricity and not covering it under GST means not being able to fetch benefit from the input credit of the two items.

4. Taxes paid on renovation and construction

A huge amount is spent on renovation and construction by the hotel industry. The taxes levied on the cost of construction and renovation will not be included in GST to input credit and set off taxes paid on the services as they are subject to variation.

5. R&D cess

The research and development cess applicable on technical know-how and franchise fees are likely to be a part of GST regime.

So, this is how hotel and tourism industry would likely be affected or rather be impacted by the GST. 

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