Effects of gst on hospitality industry

Hospitality and tourism industry in India is expected to rise from Rs.15.24 lakh crore (US$ 234.03 billion) in 2017 to Rs.32.05 lakh crore (US$ 492.21 billion) by 2028.

Implementation of GST has helped the sector by reducing costs for customers, harmonizing taxes,and reducing business transaction costs, but has its own set of challenges.

In this article, we will look at the effects of the GST on the hospitality and tourism industry.

The hospitality industry, like every other sector in the Indian economy, was liable to pay multiple taxes (VAT, luxury tax, and service tax) under the previous VAT regime. A hotel where the room tariff exceeded Rs.1,000, was liable for service tax at 15%.

An abatement of 40% was allowed on the tariff value, thus bringing the effective rate of service tax down to 9%. The Value Added Tax (ranging between 12% to 14.5%) and luxury tax, would apply on top of this.

However, for restaurants, there was 60% abatement which meant that the service tax was charged at an effective rate of 6% on the F&B bills, apart from VAT (12% to 14.5%). Bills for bundled services like social functions (seminars, marriage etc.), were taxed with an abatement of 30%.

The hospitality industry stands to benefit from the Goods and Service Tax because of the harmonized and uniform tax rates, as well as the easy and improved utilization of input tax credit. The sector is attracting more international travelers than ever before as the ultimate cost to the end consumer drops.