GST: one nation one tax and a boon for tourism

Indian tourism industry is on the upswing. India boasts of various cultural and natural heritage sites and is a foreign traveler’s delight! Recently, Indian economy underwent a radical change by restructuring its tax structure with the implementation of Goods and Services Tax (GST) through a Constitutional amendment bill in the parliament.

Demystifying GST

Earlier, Goods and services were taxed separately. The states tax sale of goods but not services while the centre taxes manufacturing and services but not wholesale/retail trade. However, now under the GST one rate shall be applicable to both goods and services.

One Nation One Tax:

With the creation of GST Council, Union government has only one-third say in decisions taken by the GST Council, while the rest is accounted for by the states; and all decisions have to be carried by a three-fourth majority. It bodes well for federal structure of India as the central and state legislatures will have the simultaneous power to make laws on goods and services tax. Earlier, states had no such power.

GST has 4 tier structure: 5% – common use items, 12%, 18% – Services sector (Includes tourism sector), 28%- Luxury goods, luxury cars, tobacco products and aerated drinks(sometimes refered as sin products)

Advantages of GST:

  • Subsumes an array of indirect taxes under one rubric
  • Simplifies tax administration
  • Improve compliance
  • Eliminate economic distortions in production, trade and consumption
  • GST, like the VAT regime, avoids the cascading of taxes. This happens when only the final customer pays taxes. This leads to lower production costs and makes exports better.

As per some reports, GST will add 2% to the national GDP!

GST has profound benefits for the Indian Economy
GST has profound benefits for the Indian Economy

Taxes paid by the tourism industry

The tourism industry is subject to levy of multiple taxes.

  • VAT – 12% to 14.5% according to the state of operation
  • Luxury Tax- 0 to 12% subject to room type, the state of operation and the services offered.
  • Service Tax levied by the central government
  • When combined, all these taxes add up to 20%-27%. The GST applicable to services sector which accounts for tourism as well would mean a tax of 18%. This bodes well for the tourism and hospitality sector. Thus, more tourists can visit India due to the low tax rate. In fact, Indian taxation system will almost fall in line with international taxation system wherein total tax burden in the Tourism sector is around 16% or so.
  • GST exempts Electricity and alcohol. Benefits that accrue due to input credit will not be applicable to both the items!
Tourism industry in India faces multiple levels of Taxes
Tourism industry in India faces multiple levels of Taxes

Case of Bed and Breakfast (BnB) rooms:

Bed and Breakfast rooms are exempt from Luxury tax and service tax up to a certain limit! Thus, in the case of Bed and Breakfast (BnB) rooms, GST would be higher or at par with the current tax regime. But we are sure that an endearing, warm Indian family would ensure that the tourist doesn’t mind spending an extra buck for a hospitable stay. After all, this sort of cultural connect is nowhere to be found! Unlike hotels, Bed and Breakfast rooms are subject to the residential rate of electricity, water and property taxes, so staying in a BnB will be a better proposition with respect to such exemptions which amount to almost 25 to 30 % less cost than those in commercial hotels or licensed guest houses!

Now, you know whom to contact while booking your flight to India!

Making GST more advantageous:

According to HRAWI President, Dilip Datwani, “if GST rate of 5% were applied instead of 18%, it would have led to the doubling of both foreign and domestic travel as well as doubling up of tourism-induced employment!” In South East Asian countries, the average tax rate on tourism is less than 10% and Indian Govt could have provided a boost to tourism in India by subjecting it to 5% GST! This view become more imortant when we see that it is tourism sector which brings more forex and creates more jobs. According to GoI figures, one foreign tourist spends $120 per day when in India ( if such foreigner is in India comes to attend a conference i.e. as a MICE delegate, spending per day is double than that of a medical tourist). However, the tourism and hospitality industry is abuzz with the GST rollout announcements.

 

Due to a uniform rate of taxes, a tourist vehicle will have seamless interstate travel. One nation one tax was a long pending demand of tourism entrepreneurs. This stems from the observation that a foreign tourist would never like to wait in luxury buses and taxis for the drivers to step out of the vehicle and pay interstate taxes and octroi tax etc at state borders. Thus, it is a step in the right direction and provides a lot more certainty to all the tourism industry stakeholders!

About the Author:

Ambuj Saxena is Co-Founder at BnBNation. He is a 2013 Brand Management graduate from Mudra Institute of Communications, Ahmedabad (MICA). Successfully executed various online and offline marketing campaigns for companies operating in Automobile, Travel and Tourism sectors as well as Government departments. Currently, as a co-founder of BnBNation, he believes that Tourism and Hospitality are as much online as it is offline, and he can add value to both. He loves interacting with guests who visit India. Helps them find a good bed and breakfast or plan their trip. He just wants each one of them to get a taste of incredible hospitality of India!

Our sources of inspiration:

http://pib.nic.in/newsite/PrintRelease.aspx?relid=148240

http://carajput.com/learn/post.php?page=gst-impact-on-tourism-industry

http://economictimes.indiatimes.com/industry/services/hotels-/-restaurants/hotel-industry-warns-tourism-will-suffer-at-18-gst-on-rooms/articleshow/55295422.cms

 

34 thoughts on “GST: one nation one tax and a boon for tourism”

  1. This is a great writeup to understand GST. In fact, I work at an accounting firm and we are currently brainstorming on including GST in our product. So, this is double useful for me 🙂

  2. Good to know so many interesting things about the tax structure for Indian tourism. I think every Indian need to be aware of these things. Good to know that Bnb rooms are exempted! Thanks for this informative post.

  3. Interesting post on GST for Indian tourism. If this does goes to one tax, hopefully it will be beneficial to India and an increase in tourism. Thanks for sharing.

    1. Hi Riely,

      You are right in thinking that GST will be beneficial for Tourism sector in India. Even we in India and other tourism stakeholders are enthusiastic about the announcement and are eagerly waiting for the first quarter results to pour in!

      Regards,
      BnBNation Team

  4. Fascinating read – I’ve never given much thought to tax terms in general but I love learning about different countries!

    1. Hi Michelle,

      Reading about the tax structures in various countries is a fascinating read! It helps one analyze own country’s policies and compare it with the ones’ one reads!
      We are glad you enjoyed reading the blog post.
      Hope to keep up the good work!

      Regards,
      BnBNation Team

    1. Hi Elizabeth,

      We are glad you liked the post and found it informative. GST is India’s biggest tax reform and shall benefit India in ways more than one! We are super excited and a bit anxious to see how it pans out!

      Regards,
      BnBNation Team.

  5. Hi Ambuj, What I fail to understand is how is it going to benefit the Indian Outbound Tour Operator who gets no Cenvat Credit since his services are being consumed or utilized outside India. The Indian traveler is now by passing the Indian Outbound Tour Operator and going directly to foreign operators who are 9% cheaper since they do not have to pay ST/GST. I think this is the final nail in the coffin for the outbound tour operator. He loses business, Govt loses payment in the form of ST/GST, jobs will be lost and finally GDP will drop.
    I am unable to understand why the Govt cannot understand this.
    Perhaps you can tell me if I am wrong?

    1. Hi smita

      Thanks for reading my blog post. You have a valid point. The main objective of the post was to present a holistic scenario of tourism as GST is passed and how it will affect the economy in general when most of the leakages are plugged. However you have a valid point with respect to outbound travel segment. Let me get back to you with more on it and hopefully a better news for you!
      Regards

      1. Dear Ambuj,

        Thank you so much for being proactive.

        We have met Government officials, written mails, approached the Grievance Cell, sent evidence of lost bookings but no one appears to be addressing our concerns. I personally have lost several bookings. Since we are Africa Destination Specialists, clients get all the knowledge from us and then approach overseas operators and book directly.

        I look forward to receiving some good news from you. Thanks a lot.

    1. Hey Vicky!
      We are glad you found the post informative! I hope it brings awareness about GST to various tourism stakeholders and brings transparency in the currently cluttered taxation system.

      Regards

  6. You put great information about GST, Taxes and related information in India.
    Please guide me, how small business owner can be benefited with new GST implementation in India.

    Thank for sharing.

    Regards,
    AlignBooks

  7. I never bothered about GST yet, after reading this blog i found it interesting and this should be implemented. Thanks for sharing the blog it was informative.

  8. “Bed and Breakfast rooms are subject to the residential rate of electricity, water and property taxes, ”
    Question No. 01)- I have a BnB inn of 10 rooms but I have named it as a Hotel. So still am I eligible for residential rate of electricity, water and property ? How can a commercial activity like Bed and Breakfast be subject to residential rate ?

    Q.2)- If annual turnover of my BnB is less than 10 lakh but the room tariff is between ₹1000 – ₹2500/- . then will I have to register for GSTIN ? My advocate says in this case I don’t have to take GSTIN or pay any tax, neither I will collect any tax from guests. Although a GST Tax rate of 12% is applicable on room tariff 1000 to 2500, but according to my advocate if turnover is less than 10 lakh then no need to pay any tax no matter what the room tariff is. This seems to be doubtful. Can you throw some light on it ?

    Note : I am from Uttarakhand where base limit for GSTIN is 10 lakh ( not 20 lakh)

    1. Hi Prakash,
      Our blog post is meant to create awareness about the guidelines of Bed and Breakfast rooms in India. Though rules and regulations vary from state to state and I can advise you on your queries. However, I would recommend you to pay heed to your CA and follow his advise.

      1. So you are not sure of the GST, if you have the latest correct information …and where it is written, would be really grateful as this is really very confusing….Thanks so much….

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