2016 winter parliament session will finally set the discussions on 122nd constitution amendment bill rolling, GST or the goods and service tax will be the point of focus, as the Modi government is keen on implementing the new tax regime from the 1st of April 2017. The final drafting of the CGST and IGST law is being done by the central government, while the state governments are busy drafting its version of SGST.
Let’s take a peek into the expected and unexpected ramifications of this bill on the hotel and tourism industry. Hotel and tourism industry in India suffers with heavy taxation in comparison with other countries which promote tourism equally or in some cases even less. Hotels in India currently levy taxes in the range of 18-20% compared with just 2-5% on an average across the world. The industry is levied with VAT, luxury tax and service tax. The tax paid differs from state to state and lack of uniformity has always been a concern for the consumer.
For the hotel industry currently, when room tariffs are at INR 1000 or above, applicable service tax is 60% of room tariff (8.7%), additional VAT (ranging between 12 to 14.5%) and luxury tax when applicable. In case food and beverage service tax of 5.8% along with VAT @ 12 – 14.5% is applicable. A combination of all these various taxes brings up the tax tally to between 25-27%, again this number varies from state to state. However, many apex bodies of Indian brewers, spirits and wine companies are lobbying before a Select Committee of the Rajya Sabha for including alcohol in the GST regime which the Constitution (122nd Amendment) Bill, but the final verdict on the same is yet to be seen.
Another reason to worry would be that at the moment the consideration is that Alcohol and Electricity consumption is beyond the purview of GST. Alcohol contributes to 20 to 25% of state revenue (state excise), thereby generating high revenue for the states. Since GST will make them share these revenues with the central government, they are reluctant to get alcohol included in the purview.
The government’s decision to keep electricity out of the ambit of the proposed goods and services tax (GST) would inflate the cost of power to consumers between 6-18% with the worst hit to be solar and wind power companies, experts and sources from the industry said. This is because these companies would have to pay GST for their inputs such as fuel and machinery but won’t be able to get these taxes refunded given that their output — electricity— is exempt. This additional 6-18% of tax will rollover to the consumer, thereby making an already expensive industry, far more so. Also, electricity is a significant input cost for Hotel Industry and keeping it out of GST means that hotel business cannot get input credit on taxes paid on electricity. Same goes for Alcohol.
GST is glimmer of hope for the Hotel and Tourism Industry, if we can keep the GST rate between 10 to 15%. GST might herald with its uniformity of tax rates, a better utilization of input credit which in turn benefits the end user in terms of affordability. Our country which stills reigns high on tourism despite the fact that the tourism industry is not as economical as its neighboring countries are, can possibly attract more tourists, by passing of the GST law, which then will indirectly amount to more revenues generated for the government.
However, currently the implementation of the GST in the Hotel and Tourism industry is looking at an expected Tax impact of 17-27%, and thereby sparking a plethora of views by top names in the industry.
Mahesh Iyer, COO, Thomas Cook (India), says, “We are delighted that the GST Bill has been passed by the Rajya Sabha which is a truly crucial development towards a unified tax regime, vital in addressing the ambiguities of the current indirect tax landscape, and hence beneficial to the economy as a whole. India is beyond doubt a key emerging market and this move will strengthen the confidence among international investors and their belief in the India growth story.”
And, elsewhere, “It will encourage a parallel economy, especially in the unorganized segment, as people will not opt for bills and there will be unaccounted transactions due to which the government will lose out on revenues,” said Riyaaz Amlani, president, National Restaurant Association of India.
Effects of GST on this invaluable industry is still under contemplation and is open to various discussions, however, most within the industry believe that its long term effects would be beneficial and mutually conducive to the government as well as to the people within the Industry
We’ll keep the discussion open until the winter session is done with a verdict on Tax levied. Within a Year of its implementation from 1st April 2017, we’ll have a fair verdict on the true nature of GST and its benefits for all industries.