Who doesn’t love to travel? Everyone does, right? And the euphoria of traveling increases if there is an abundant availability of the amenities fulfilling the tourist’s requirements. The tourism sector in India has grown aggressively as it accounts for an impressive 9.6 percent of the Gross Domestic Product. It has also emerged as a key factor in the development of the overall Indian economy. The tourism sector in India has the potential to generate a large employment base. Currently, the tourism sector contributes around USD 150 billion to the economy. But would the impact of GST on the tourism sector reduce its potential?
The earlier regime structure
You can easily differentiate between the earlier indirect tax to GST. Previously, there was no set format and due to the multiplicity of the taxes, the people wouldn’t comprehend the exact motive of the levied taxes. Now, as far as the earlier regime is considered the state government would levy:
2. Luxury tax
3. Entertainment tax
And then further the central government would levy:
1. Excise duty
2. Customs tax
3. Service tax
4. Central state tax
The burdening effect of these taxes would not only baffle the tour operator but also the tourist. Mostly, the foreign nationals found such distribution of the taxes unfair and hectic. But now that the taxes are streamlined, the levied taxes are straight and clear to the taxpayers. Although, there were more cases of unfair distribution of the taxes on various hospitality items. For example, if a hotel room’s tariff increased INR 1,000, then the service tax at 15% would be levied on the room. And further, VAT and luxury tax would also be applicable on the same. So, the entire burden of taxes on taxes would come on the shoulders of the taxpayer. Fortunately, GST calculation in India has a completely different and transparent approach to the taxation.
GST on hospitality
The Goods and Services Tax Act is no less than a blessing for your hospitality business. Amazingly, under the rules of GST, no matter what your annual turnover actually is, the tax would be applicable based on the category your service falls into. And the icing on the cake is that the budget hotels with a tariff of INR 1,000 are exempted from the regime. However, those charging INR 2,500 for a day are applicable to pay 12% of GST. The five-star hotels having obtained a liquor license are levied 18% of GST as per the latest rules. And also hotels with a daily tariff of INR 7,500 are applicable to pay 28% of GST.
All this seems so sorted, right? It is because the government made the rules in a way that it ensures the maximum benefit of all the taxpayers from every sector. In India, around 80% of hotel comprises low and medium-budget rooms. Such entities, when relieved from the hectic task of the GST calculation in India, could expand more ultimately improving the economy of the nation.
GST on tourism
The applicability of the Goods and Services Tax Act has not only streamlined the taxation but the tourism sector as well. For obvious reasons, the administration of the taxation has become easier. And since the benefits of GST are many, there are few cons as well that can’t be ignored. The most complex problem that the service provider has to face is making use of the technological tools in order to comply with the regime. For that matter, the GST compliance tool has been of a great support to the entire tourism sector. However, most of the businesses these days take the assistance of the tool to make the taxation hassle-free.
The long-term effects
It is very surprising to notice that there is no global competition in the tax rates. The Asian countries like Malaysia, Thailand, Japan, etc. have a very low tax rate of about 7%-8% on tourism. That makes these countries a preferable choice for the tourists. Lots of competitors in the market have taken the initiative of the government to put an end to the tax evasion very positively. And keeping all the negative aspects aside, these businesses are even complying with the regime either way.
Despite the complexity of the regime, many businesses are only focused on the positives of the Goods and Services Tax Act. And the prime reason behind their dedication is that they have already experienced the difference GST made in their businesses. Manageable tax rates and benefits like input tax credit have turned to be the capital-booster for these businesses, especially for the tourism sector. All in all, the regime, with its potential to bring a massive economic change, will evolve and make the process of development of the nation faster than expected.