India in the recent months seem to be gripped with a lot of discussions and debates on ‘GST’ and after a lot of contemplations and revisions finally, it is all set to be implemented. As per the latest reports, the finance minister Mr. Arun Jaitley has announced that GST will be rolled out with effect from the 1st of July 2017. Before we start off with our introspection of the implications and effects of GST on the hotel industry it’s important to get a quick perspective of what GST is all about and an understanding of the advantages of GST as a whole.
What is GST?
‘GST’, the acronym stands for Goods and Services Tax and in simple terms can be explained as an indirect tax reform to be implemented with an aim to remove tax barriers between different states and the centre thereby creating a single market and a single structure of taxation across the country and industries.
The existence of GST is governed by the GST council and the chairman being the Union Finance Minister of India – Mr. Arun Jaitley. To give you a quick picture of the taxation structure under GST henceforth the goods and services will be taxed under the following five primary tax slabs as 0%, 5%, 12%, 18% and 28% irrespective of any state. Hence a uniform tax structure on goods and services across the entire country.
Now let us extract the key elements of GST pertaining to the Hotel Industry and access the implications GST has on the hospitality industry at large.
Key Highlights for Hotel Industry:
1. One of the key highlights and the biggest benefit of GST is that it is supposed to replace both the present service tax and luxury tax as hotels till date were suffering from the burden of multiple taxations. In order to bring in a uniformity and eliminate the requirement for unnecessary taxations in various states, GST will be implemented that will necessarily subsume excise, service tax, state VAT, entry tax, octroi and other state levies.
2. According to the council, the GST has set taxation slabs on hotel room tariffs under which an 18 % tax will be levied on rooms with tariff between Rs 2,500 to 7,500 which is a great relief to hoteliers. As per the current scenario, 21.3 % taxes are levied on this traffic range and with this decrease, to 18% the remaining 3 % of the tax discount will be passed on to the customers. There was a huge repercussion initially when the GST was first announced on these tariff as it was initially decided to levy a 28% taxation on room tariffs above Rs5,000. With much resistance and discussions and as a great relief to hoteliers it has finally been decided to increase the threshold from Rs 5,000 to Rs 7,500. Hence with this revision, the highest tax rate of 28% is assigned to tariffs of Rs 7,500 and above. This was finally decided by the GST council led by Union Finance Minister Arun Jaitley in a meeting held on the 17th of this month.
3. A big cheer is also certain for those who like to dine at 5 star and luxury hotels as bills are likely to get much cheaper with the GST. The GST on five-star hotels will be reduced to 18 per cent from 28 per cent which will bring it at par with standalone air conditioned restaurants.
All said and done accordingly to main trade analysts this is arguably a very welcome revision with the new GST but it also has to be noted that if India has to remain competitive as a tourist destination this surely is not enough. As rightly pointed out by HRAWI President Mr. Dilip Datwani almost all our neighboring countries pay 5 – 12 % GST or equivalent tax whereas at the same time hotels in India would be levying 18 and 28 per cent of GST. This surely will not augur well with foreign inbound tourists who are normally lured with super deals by our neighboring countries. Hence this is going to be a big concern to attract tourists around the world. It is just a matter of time as we need to wait and watch after the GST rolls out and is operational.