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.
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!
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!
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!
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