GST has become the buzz word these days, and you can hear people talking about its impact without actually understanding its real implications. The hotel industry is no alien to this hue and cry, and experts all around are trying to sum up how GST will impact the hotel industry.
The Goods and Services Tax is scheduled to be launched on 1st of July and is set to revolutionize the way we’ve been doing our taxes. But what is GST and how will it reform our countries current tax structure? And most importantly, its impact and implication for the hotel industry. We will answer these pressing questions in this blog entry.
What Is GST?
Goods & Services Tax is a comprehensive, multi-stage,
The idea behind GST is to have one consolidated tax to subsume various currently existing indirect taxes; it will benefit the Indian economy in many ways.The Goods and Services Tax Law aims at streamlining the indirect taxation regime. As mentioned above, GST will subsume all indirect taxes levied on goods and service, including State and Central level taxes. The GST mechanism is an advancement on the VAT system, the idea being that a unified GST Law will create a seamless nationwide market.
Just to give our readers an extra dose of information, this model of taxation, GST was first introduced by France in the year 1954. And since then approx 159 other countries have adopted this GST model of taxation in some form or the other.
Impact Analysis of GST – What it Means for Hotel Industry
As per the current Indirect Tax regime, the hotel industry is plagued by multiple taxes, namely Service Tax, VAT, Luxury tax to name a few. GST will subsume all of these taxes and will club them under one single entity. Moreover, it will help the industry grow by eliminating numerous taxes burden.
Presently, the centrally administered service tax is levied at 9 percent in the hotel industry and 6 percent in the food & beverage sector. Besides that, the luxury tax and VAT are state-dependent. Therefore the impact of GST will be different based on your geographic location. Let us break it down for you.
Hotels will fall under the tax bracket of 12% to 28%, further depending on the tariffs. But for simplification purpose let us assume that the GST will be charged at 18% subsuming all other taxes. States like Delhi, Tamil Nadu, Gujarat which apply a luxury tax on rack rates and other states like Kerela, which have a high luxury tax rate, have total tax rate summed up to be around 19% to 25%. So the impact of GST will be positive, cutting down the tax burden by around 3-7%. While on the other hand states like Maharashtra which levy lower luxury tax rate, will have relatively neutral effect reducing the tax burden around 1%.
In a nutshell, GST will have a fairly neutral effect on Hotel Industry.