All eyes are set on the upcoming GST declaration, soon to get announced on July 1 after having myriads of pre-discussion rounds across the nation. Under the proposed GST bill, different tax slabs have been agreed upon for classifying the restaurants on the basis of their turnover and whether they are AC or non-AC.
This means customers would have to pay extra or lesser based on the kind of restaurant they are visiting i.e an air conditioner restaurant or just a regular non-AC food joint. The service tax rate will be much higher at restaurants in 5-star and 7-star hotels which will be set at 28 per cent.
Moreover, Goods and Services Tax Council will decide different taxation subject to the type of hotel a customer may choose. The hotels and lodges coming under GST will be charged between ₹ 1,000 and ₹ 2,500 and that too at 12 per cent. While GST will be 18% for the hotel rooms within the price range of ₹ 2,500- ₹ 5,000. For lodges and hotels lower than 1,000, the GST will be 15%.
Let’s take a snapshot of GST tax which witnessed the charges levied on restaurants and hotels:
- Restaurants with a turnover of less than ₹ 50 lakh will attract a tax rate of 5 per cent.
- Non-AC restaurants will attract a 12% tax rate.
- 5-star restaurants will have to submit a luxury-tax of 28% GST
- Hotels, lodges with tariffs lesser than ₹ 1,000 will attract a GST of 5%.
- Hotel, lodges with tariffs between ₹ 1,000 -₹ 2,500 will attract a GST of 12%
- Hotel, lodges with tariffs between ₹ 2,500 -₹ 5,000 will attract a GST of 18%
For example : Mr. Shah plans to visit Manali along with his wife costing him ₹ 5,000 per day for five days. The total accommodation for five days will cost him ₹ 25,000/-. Now with the application of 18% GST, will add further to his bill costing him ₹ 29,500/-. Earlier at 19%(Luxury Tax = 10% plus Service Tax= 9%), it would have costed him ₹ 29750. So, you can very well see the benefit of the application of GST on it.
Let’s examine the pros and cons of GST on hotel industry :
Post GST effect will abolish all various forms of other taxes and bring uniformity in charging single tax to regular customers. GST tax slab will carry cess charge along with it. This means a reduction in progressive steps and more avenues to streamline the taxation procedure.
Clarity for Consumers
How many times, as a customer, we have paid attention on where the taxes really going? However, it becomes difficult to compare between a VAT and an entertainment tax. The hotel customer will only view it as a single charge on their bill and that provides them a better clarity of the cost they are rendering for the services and products used.
Saving Time and Improved Quality
Post GST effect will be clearly seen in the elimination of many entries from the hotel’s book of accounts in the name of various taxes means reduced time for processing a transaction. This also implies that the customer procures their orders comparatively faster and fresher and room reservations become an easy procedure.
As the government has set a date i.e. July 1 for the introduction of the bill to roll out, still there isn’t enough clarity on its implementation. Systems should be installed in place and clear guidelines have to be set for the maintenance of the accounts and filing of returns. However, as a result of its upcoming launch, Service Tax too have created a lot of dilemmas, and hopefully, authorities would have learned a lesson in order to work on the transparent implementation of GST.
Likelihood of Increased Cost
Look at the present scenario of taxes in the state of Maharashtra for instance. Presently, the taxes on hotel rooms are levied 19%(Luxury Tax = 10% plus Service Tax= 9%) and those prevailing in the F&B segment are 18.5%(VAT= 12.5% plus Service tax= 6%). Comparing these rates with 18% GST flat, you observe that the benefits are not considerable i.e., 1% and 0.5% savings for rooms and F&B respectively. There are other prevailing costs as well such as costs for new systems and introduction of accounting practices with the changes in regulations and the charges shall transcend the benefit.
Competition from Asian Markets
India is now into a global competition especially from the Asian markets in the hotel and travel industry. However, it is becoming a widely preferred destination due to improvisation in its services, better alternatives, and affordable prices. To have an equal groundbase however, Indian GST should fall into pace with those of its other Asian competitors but they are nowhere near you can see below :
- Singapore = 7%
- Malaysia = 6%
- China = 11%
The huge gap appears mockingly at the hotel service provides and gives them an unequitable benefit to competitors. This alone could make a budding tourist reassess their travel plans.