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Impact of GST on Hotel Industry: On July 1, 2017, the Government of India implemented a new system of indirect taxation across the nation. It was Goods and Service Tax (GST) which came into existence in place of multiple taxes levied by the state and central government of India, i.e. excise duty, service tax, value added tax (VAT) and others. GST nullifies all indirect taxes.
While GST was first introduced in France in 1952, India’s GST system is modelled based on Canada’s dual GST system.
GST’s implementation significantly impacted all industries and businesses. The transition to a new tax system initially created confusion and uncertainty, leading to some resistance from various sectors, including the hotel industry.
In this blog, we will see the impact of GST on the hotel industry, hotel GST rate along with its advantages and disadvantages.
Understanding the Components of GST
To effectively understand GST, it’s crucial to understand its three primary components:
1. Central GST (CGST): This tax is collected by the Central Government on intra-state sales, meaning sales that occur within the same state or union territory.
2. State GST (SGST) or Union Territory GST (UTGST): Depending on the location, either SGST or UTGST is collected by the respective State or Union Territory Government on intra-state sales.
3. Integrated GST (IGST): IGST is levied by the Central Government on inter-state sales, that is, sales that occur across state boundaries.
In essence, GST ensures a uniform tax system across India, eliminating the complexities of multiple taxes that existed previously.
Hotel and Hospitality Industry
The tourism sector is a rapidly expanding industry in India, contributing significantly to the nation’s GDP. It is projected to grow from $136.2 billion in 2016 to $275.2 billion by 2025. However, despite the widespread awareness of GST, many remain unclear about its implications for the hotel industry. India’s implementation of GST on July 1, 2017, aligned it with over 160 other countries worldwide. The primary benefits of GST include reduced transaction costs for businesses, lower costs for consumers, and a more equitable tax system.
Taxes before GST on Hotel and Hospitality Industry
Prior to GST, the hospitality industry in India faced a complex tax regime, including multiple taxes such as VAT, luxury tax, and service tax. The government’s focus on promoting tourism through initiatives like ‘Swagat’, ‘Soochana’, ‘Suvidha’, ‘Suraksha’, ‘Sahyog’, ‘Samrachana’, and ‘Safari’ aligns with the country’s commitment to providing a memorable experience for visitors.
The World Travel and Tourism Council (WTTC) ranks India’s travel and tourism sector seventh globally in terms of its contribution to GDP. This industry is a major source of employment, generating 40.3 million jobs in 2016, a number expected to increase to 46.42 million by 2026.
GST on Hotel and Hospitality Industry
Regarding the impact of GST on Hotel rooms tariffs in India, the prevailing GST rate on hotel rooms tariffs are presented in the following table.
GST on Hotel Rooms ( Effective from October 01, 2019)
GST on Hotel Rooms ( before from October 01, 2019)
GST on Banquets
GST on Restaurants
Advantages of GST
The implementation of GST has brought several advantages to the hotel industry, which are as follows:
- Simplified Administration: GST has consolidated multiple taxes into a single system, reducing the administrative burden on hotel management. This means less paperwork, fewer compliance requirements, and more time to focus on core business activities.
- Increased Customer Attraction: Lower taxes on hotel bills (because of GST on hotel bill) make staying at hotels more affordable for customers. This can lead to increased occupancy rates and higher revenue for hotels.
- Enhanced Transparency: The GST system is designed to be transparent, making it easier for both customers and hoteliers to understand the structure of bills. This reduces confusion and disputes, improving the overall customer experience.
- Reduced Tax Evasion: The new GST structure has made tax avoidance and evasion more difficult. This ensures that hotels pay their fair share of taxes, leading to increased government revenue and a more equitable tax system.
Challenges Faced by the Hotel Industry Under GST
There’s a silver lining to every cloud. The introduction of GST, while aimed at simplifying the tax system, presented several challenges for the hotel industry.
- Initial Ambiguity: The transition to a new tax system initially created confusion and uncertainty among businesses, including hotels. This led to a degree of resistance and reluctance to fully embrace the new system.
- High GST Rates for Luxury Hotels: Luxury hotels, with their higher room rates, face a higher GST slab rate. This can impact their profitability and competitiveness, especially in a price-sensitive market.
- Increased Costs: The hotel industry faces rising costs regardless of their approach to workforce management. Whether they opt for hiring new skilled employees or investing in training existing staff, the overall expenditure is likely to increase.
Conclusion
Impact of GST on hotel industry is significant. While it has offered several benefits, such as reduced overall costs for customers and input tax credits for businesses, it has also presented challenges, particularly for hotels with high room tariffs and the exclusion of liquor from the GST regime.
To fully realize the potential of GST and address these challenges, it is essential to consider the inclusion of liquor in the GST regime, a review of the GST rate for hotels, and continuous efforts to simplify compliance procedures. By addressing these issues, the GST regime can be optimized to benefit both customers and the hotel and restaurant industry, fostering growth and prosperity.
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