How things were Pre GST and Post GST for Tourism Sector? Analysis for How things are Under GST for Indian Tourism?. Tourism represents world’s third largest export avenue in terms of global earnings after fuel and chemicals. Modern tourism is closely linked to socio- economic development. Tourism is responsible for one out of 11 jobs and 10% of the world’s economic output. Apart from providing employment, income and foreign exchange for the country, the trade in the tourism sector has an economically positive impact on other associated industries such as food manufacturing, services, construction, agriculture, handicrafts etc. now check out How things were Pre GST and Post GST on Indian Tourism Sector?.
How things were Pre-GST for Tourism Sector?
Before GST was rolled out, the tourism industry was liable to pay multiple taxes (VAT, luxury tax, and service tax). Let us take the example of a hotel whose room tariff is greater than INR 1000, this hotel was liable to charge a service tax of 15%. However, the effective rate of service tax was dragged down to 9% as the Laws under VAT regime gave an abatement of 40% on the tariff value. Next, the Value Added Tax (12-14.5%) and luxury tax were added on top of this.
An abatement of 60% for Restaurants brought the effective rate of interest to 6% on F&B bills, apart from VAT (12-14.5%)
In case of Social functions like seminars, marriages etc the bills were taxed with an abatement of 30% under bundled services.
This VAT tax regime increased the final cost as an end user or customer paid a tax on tax. This was termed as cascading tax for consumer or end user. Tourism businesses and hoteliers could not avail any input tax credit on the taxes they paid, as state taxes like VAT could not be set off against central taxes like service tax and vice versa.
How things are Under GST for Indian Tourism?
With the motto “Atithi Devo Bhava” (‘the guest is equivalent to God’) Indian tourism industry was expected to reap great benefits under the new GST regime. Due to uniform tax rates and better use of input tax credit, the final cost for end-user was perceived to decrease which in turn would attract more foreign tourists. This meant more revenue for the government and assist in the growth of the industry.
However, confusion and lack of lucidity around GST has complicated the process and created trouble for consumers booking hotels during peak tourist season. As per government guidelines hotels with declared tariffs of Rs 7500 and above can charge 28% GST. But hotel owners explained that declared tariff was imprecise and unclear as prices of hotel rooms vary with seasons. Depending on the influx of people hotels could implement new tariffs several times during a year. Hence the term is misunderstood and creates confusion among travellers.
From the inception as recommended by GST Council and subsequently the law that have been framed, hotels with tariffs less than Rs 1,000 are GST free. Hotel Rooms for Rs 1,000-2,500 are taxed at 12% while those with a tariff of Rs 2,500- 7,500 are liable for 18% tax and those above Rs 7,500 are taxed at 28%.
However, it could be understood that hotels depend on tourist seasons for good business, hence the invoice value should be considered for calculating the GST rate in hotels. The tax slabs appear to create confusion among customers and the solution ahead as suggested by experts is to charge taxes on invoice or transaction value rather than the declared tariffs.