India is always growing in the travel and tourism area. Foreign travelers are very much delighted to be in India for it’s cultural diversity. Now the Indian economy underwent a radical change in their tax system by the implementation of GST ( Goods and Services Tax ) through a Constitutional amendment bill in the parliament.
The GST is going to impact almost all areas of an Indian. I am writing this article to make you aware of how the GST is going to impact the travel and tourism industry in India.
What is GST in a nutshell ?
Goods & Services Tax is a comprehensive, multi-stage, destination-based tax that will be levied on every value addition.
Earlier, Goods and services were taxed separately. The states tax only for the sale of goods but not services while the central government 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
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 process
- Improve compliance compared to earlier tax system
- Eliminate economic distortions in production, trade and consumption
- 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, Goods and Services tax will add 2% to the national GDP!
Taxes paid by the tourism industry
VAT– 12% to 14.5% this can vary according to the state
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 is going to be boon for Indian tourism. 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.
The Impact of GST on Accommodation
Accommodation is an inevitable part of all journeys. Now you are going to get the real benefits of GST in accommodations. Earlier rooms worth INR 5000 would have taxed 28% from your pocket. Now you need to pay this tax only for the rooms beyond INR 7500. See the below details for more details on accommodation
This is a right opportunity for the travelers to pick the best for them as per the GST. Backpackers would love to prefer the < 1000 INR rooms. But it’s all up to the preference whether you are a backpacker or glampacker or luxury traveler.
The Impact of GST on Food & Restaurants
Restaurant industry is going to get the most benefits out of GST. The Overall cost of procurement of raw materials will go down. Most of the food items like milk,eggs, food grains, curd, common salt, sugar, tea, edible oils etc. are either exempt from GST or are in the 5% tax bracket.
Though the entire restaurant industry will benefit from Goods and Services tax, cloud kitchens and Food delivery businesses will be most benefited.
India has a higher rate of taxes than the neighboring South East Asian countries. However, GST will still lower the previous tax rate and may need revising them again in the near future.
It made so may chaos in the country but things will get changed in few quarters. Let’s expect a time where travelers get the maximum benefit out of GST.
Feel free to share your thoughts through comments about the new tax system implemented.