Impact of GST on Tourism Sector, GST Impact on Tourism Sector: Tourism represents world’s third largest export avenue in terms of global earnings after fuel and chemicals according to a representative from the UN World Tourism Organization (UNWTO). Tourism is responsible for one out of 11 jobs and 10% of the world’s economic output.In addition, tourism’s value-added to an economy can also be increased by attracting a more diverse mix of tourist arrivals, using e-commerce to broaden the reach of local tourism businesses, and broadening the offer to include cultural, wildlife, and heritage tourism.
Impact of GST on Tourism Sector
Tourism Industry in India
- High Multitude and Incidence of Taxes on account of taxation at multiple levels and absence of seamless input credit flow
- Lot of business in this sector gets generated through online mediums. Significant amount of clarity is required in the existing laws to deal with e-commerce players and aggregators.
- Lack of Proper Infrastructure in terms of access, connectivity and services and many unorganised players in the industry.
- Non-availability of skilled & Semi skilled man power required for the industry to attract foreign tourist as well as promote local tourism specially Eco Tourism & Rural Tourism which lacks professional approach towards service and customer satisfaction
- Lack of Marketing, Branding & Promotion efforts for the rural, cultural and Eco friendly remote locations and their conservations
Current Business Models followed in tourism sectorModel 1:- Total Tour Package
Here all the bookings are done directly by the person travelling. The tour operator only facilitates the transaction and helps traveller to identify various suppliers as per their requirements and arrange for its booking. Payment flow goes straight away from actual traveller to end service provider and tour operator only charges for its service portion from traveller. It is getting popularity since it can give customised package as per the traveller’s requirement with the reduced cost.Model 3:- Back end Commission
Here there are parties who take bulk booking from the existing end suppliers like flight operators, hotels, for time being at very low cost and then sell to the tour operator or corporate clients or others. They are working as intermediary only dealing in specific segment of the tourism industry like Oyo Room.Model 5:- Travel Aggregator
Major issues in Present Tax system
- Taxation of service offerings at multiple levels in the Tour Package. This leads to overall taxation to this sector In the range of 20-27% considering a loss of Input Tax credit of various taxes, like excise duties, import duties, luxury tax, entertainment tax etc.
- Differential taxes across states which vary frequently in terms of Luxury Taxes and Local Vat.
- Very confusing abatement patterns to derive the taxable component of the services and that too changing very often
- High State Entry/Road Tax on commercial vehicles in certain states, which is a burden on the Foreign Tourists.
- Many Small Player in the industry so Tax chain break at many level resulting into higher tax credit loss to players
- No cenvat credit available for the infrastructure development which is huge cost to the Industry and resulting into higher costing
Taxability under GSTAccording to the CGST Law which neither contains the exemptions nor the rates of taxation, it appears that most of the services in relation to Tourism would be subject to levy of GST as the same is to be treated as ‘supply’. Since taxable event is supply, it is necessary to understand certain terms like Location of Supplier of Service, Location of Recipient of Service and Place of Supply. Tourism industry supplies bundle of services and hence definition of Composite Supply and Mixed supply also needs to be understood.
Location of Supplier of ServicesAs per Section 2(71) of CGST Law,‘location of the supplier of services’ means,
- (a) where a supply is made from a place of business for which the registration has been obtained, the location of such place of business;
- (b) where a supply is made from a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment;
- (c) where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the provisions of the supply; and
- (d) in absence of such places, the location of the usual place of residence of the supplier;
- (a) where a supply is received at a place of business for which the registration has been obtained, the location of such place of business;
- (b) where a supply is received at a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment;
- (c) where a supply is received at more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the receipt of the supply; and
- (d) in absence of such places, the location of the usual place of residence of the recipient;
Place of SupplyAs per Section 2(86) of CGST Law, ‘place of supply’ means,— Place of supply as referred to in Chapter V of the Integrated Goods and Services Tax Act;
Illustration: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.Composite Supply
Also the key factors in GST is ease of availing input tax credit and therefore it is necessary to understand definition of Input Tax, input, Input Service and Capital Goods to understand allowability of various taxes paid on inward supplies.
- There are likely to be concerns in valuation of restaurant services in view of the industry practice of discounts/offers/policies in the form of incentives. The proposed valuation rules are different from the existing ones and as such this sector need to frame an appropriate policy for such discounts in advance making it a part of documentation. Any discount which is not known at the time of entering transaction with customer shall not get the benefit of reduction in corresponding taxes under the GST regime.
- Service providers having centralized registration will have to get registered in each state from where they provide services. Although Government has been claiming "One Nation One Tax", practically it is not going to be so. Anyone providing services from multiple states is already enjoying "One Nation One Tax". However now that the states also have been constitutionally granted right to collect GST on services, each state would start behaving like a separate country. And if that is so a service provider catering to customers from different states, will have to opt for registration in each such State or Union Territory.
Composition scheme in Tourism SectorComposition scheme can be availed in tourism sector by the supplier who is engaged in providing any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption).
Person foregoing negligible amount of input tax credit, can benefit by opting for composition scheme since their total output liability shall reduce to 5% (2.5% CGST+ 2.5% SGST) as against current liability of 9% - 10%