September 16, 2015 TnH Global

Hotel Industry cautiously optimistic of the impact of GST

The hotel Industry is hopeful that implementation of Goods & Servies Taxes (GST) will impact it positively, but there is concern about the possible high rate of GST for the industry. The industry is awaiting clarity on the GST rate. The actual impact of GST on the hotel industry will depend on the GST rate applicable to the industry.

The much awaited Goods & Services (GST) Bill could not be passed in the recently concluded session of the Parliament, which was marred by constant disruption by opposition parties. This has made the implementation of GST from April 2016 very difficult, as the government has planned. But as there is near unanimity among political parties on its efficacy, sooner or later GST is going to be a reality. If the government misses its target to roll out GST from April 2016, then it can be implemented from April 2017.

India’s Travel and Hospitality industry has been demanding rationalization of taxes for long time. The industry hopes the GST will address some of their tax-related concerns. The industry hopes that implementation of GST will rationalize and simplify tax regime. Travel and tourism industry believes that GST, once implemented, will bring much-sought after relief to the industry, who are caught in cobweb of multiple taxation.

“While the GST Bill has been long in the waiting and has been labeled as an important milestone in the reforms required by the country, the details of its implementation are still sketchy,” said Ajay Bakaya, Executive Director, Sarovar Hotels. The real quantum of the tax that would be levied remains unclear and is expected to be in a range of 17 to 27 per cent across various goods and services, and for the hospitality sector, said Bakaya, “This is rather high and the sector which is already struggling on account of high and complex tax structures and immensely high cost of capital, will only be more burdened if the GST impact is within the expected range above.”

Bakaya strongly feels that the government should keep GST levels for the hospitality industry between 8 & 10 % and exempt foreign travellers from GST or allow refund on the same.

As regards impact of GST on hotel/hospitality industry, and tourism sector at large, Bakaya said that GST will help in reducing multiple taxations which will give a significant boost to the hospitality and tourism industry. “The GST is supposed to replace both service tax and luxury tax as hotels are presently suffering from multiplicity of taxation. Though the passing of the GST Bill is a step in the right direction but if it is at a high percentage of what we are facing today, it is not going to have any positive impact on the industry. We expect the government to understand that tourism is a globally competitive business,” said Bakaya.

He said that all the industries will benefit from GST provided it is clear of bureaucratic bottlenecks.

The implementation of GST may also improve India’s competitiveness as tourist destination. Currently, the taxes are high and we have not been able to attract tourists unlike our neighbouring countries, where the tax burden on tourists is low, said Bakaya, adding that GST regime will definitely make doing business easier and reduce paper work for hotels, but taxes should be capped at 10%. “When the tax rate is high, it will negatively impact the revenue for hotels.”

According to Urmil Khurana, Regional Director, Finance, South Asia, Starwood Hotels & Resorts India said that the hotel industry is highly taxed and grapples with multiplicity of taxes. “Making the tax regime rational and reasonable has been on the wish-list of the industry for some time now. GST is a positive step in that direction as it will replace all the other taxes like Service Tax, VAT, Excise, Octroi and other State Levies. However, we need to see the fine print first. There has been a delay in the roll-out and no one is sure what the tax rate will be,” said Khurana. “We hope once the tax is applied, it has taken into account the concerns of our industry and kept it low, that is 10- 15%. The government has taken other steps to boost tourism and hospitality sector such as ease of visas and improved infrastructure. A low GST, in my opinion, will be another step in this direc-tion.”

Welcoming the initiatives to implement GST, Gaurav Gaur, General Manager – Operations Finance, The Leela Palaces, Hotels & Resorts said that the implementation of GST will definitely go a long way in addressing some of long-standing concerns of the hotel industry. However, he added, “We are still awaiting the clarity on GST rate applicable to hotel industry. As of now we are not sure what will be GST rate. We will have to see what will be effective rate of GST to make an assessment of the overall impact of the implementation of GST on the hotel industry. ” As is applicable in many countries, the rate of GST for the hotel industry in India should also be kept low. GST rates for hotel industry in countries like Indonesia, Sri Lank, Indonesia, Malaysia, China, and Thailand are as low as 7 %, making these countries cost effective and popular tourist destinations. Gaur hopes that services provided by the hotel industry will not be treated as luxury items in the new indirect tax regime. He expressed concerns over the plan to keep liquor and electricity outside the purview of the GST, as two are the major expenditure components for the hotel industry. If these two items are kept out of the preview of GST, the hotel industry will not gain much from the implementation of GST.

Khurana said that as far as impact of GST on hotel/hospitality industry and tourism sector is concerned, “The actual impact will depend on the quantum of the tax, once it is implemented. The delay in the roll-out is not a good sign and we hope the roadmap is clear soon. It will help create a common market and reduce the cascading effect of tax on the cost of goods and services. The implementation of GST would remove multiple taxation ((service tax, VAT, Excise, Octroi & State levies) and bring in ease of doing business.

At present hotel taxes are in the range of 20% in India. The industry demand has been to cap the GST lower, ideally around 10%- 15%. Countries like Malaysia have recently introduced a 6% GST and that has had a positive impact. However the expected quantum of GST is likely to be between 17-27%, which is high and may have a negative impact, at least in the short term. We will know once we read through the fine print.” said Khurana. “At present every state in India has different level of taxes for hotel industry. Once the GST will come into force, it will bring uniformity in taxation across states, and eliminate multiple taxes. This will definitely bring great relief for travel and hospitality industry,” said Gaur expressing hope that GST rate applicable to the hotel industry in the country will be in line with the industry’s expectation and not more than what are prevalent in the South East Asian countries and China. One of the main objectives is to increase ease of doing business in addition to reducing taxes. According to Gaur, the implementation of GST will definitely increase the ease of doing business in the hotel industry because currently multiple taxes involve a lot of paper works, and will improve competitiveness of India as a tourist destination, helping it compete with its neighbouring and nearby countries. Low level of tax will cut cost, which will ultimately be passed on to customers.

The GST Bill is a constitutional amendment bill, which, onces passed by the Parliament, needs to be passed by at least half of total State legislative assemblies before it gets president’s approval, and comes into force. The bill provides for a GST Council, which will be a joint body of the states and the Union. The GST Council will decide GST rates once it is constituted. GST will be levied on purchase of goods and services by consumers. GST rates will be uniform across the country. The GST will subsume multiple indirect taxes such as excise, service tax, Central VAT, state VAT, entry tax, octroi and other state-level taxes into a single tax for goods and services. The GST will make India a single market as far as taxation is concerned and will remove many tax related barriers.

Once GST comes into force, the price of products is expected to fall, which will increase the demand of products that will spur economic growth in the country. GST will also improve the ease of doing business and reduce cost of the local products and services, making it more competitive in the domestic and international markets.

"“The real quantum of the tax that would be levied remains unclear and is expected to be in a range of 17 to 27 % across various goods and services, and for the hospitality sector. This is rather high and the sector which is already struggling on account of high and complex tax structures and immensely high cost of capital will only be more burdened if the GST rate is above the expected range.”"

"“We need to see the fine print first. There has been a delay in the roll-out and no one is sure what the tax rate will be. We hope once the tax is applied, it has taken into account the concerns of our industry and kept it low, that is 10-15%.”"

"“We are still awaiting the clarity on GST rate. As of now GST rate are not clear. We will have to see what will be effective rate of GST to make an assessment of the overall impact of the implementation of GST on the hotel industry. GST rate for the hotel industry should be kept low as it is in many countries.”"