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GST Impact on Hotel Industry


It is most likely that the new indirect tax regime of Goods and Services Tax will get enforced from 01.04.2017. While the industry is busy in analyzing the GST Impacts with their GST Consultants, Hotel Industry seems to be relaxing and eagerly waiting for the new regime. Hotel industry is likely to have far reaching positive impact of GST.

At the very outset when the hotel industry is paying Service tax, VAT, Luxury Tax and other taxes whose sum total comes to 30-35%, they are going to gain to the extent of 17% under GST, assuming that the standard rate of GST i.e. 18% would apply. Since even today the consumers are ready to pay high taxes at a luxury hotel, it is expected that the hotel industry would retain the margin with themselves rather than passing on to its customer.

Once GST is enforced, multiple tax regimes will go away and hence reduce the compliance cost enabling the ease of doing business for industry. It has also been proposed that there shall be least interference by the revenue authorities under GST. In the present regime, where the hotel industry is administered by the Central government, State Government and Local Authorities at the same time, it is facing the inspections/audits/assessment issues to a larger extent.   

Also it is likely that under GST regime the cost of production for the hotel industry will go down due to seamless availability of Input Tax Credit. The set-off of VAT with service tax or vice-versa which is not available in the present regime, will be available once GST rolls out. The service tax on major expenses of housekeeping, maintenance charges etc which a hotel pays is not allowed to be set-off against the VAT charged which proved to be an additional cost for them. Alcoholic liquor for human consumption which is kept out of GST regime may prove to be a spoil-sport as no ITC shall be available for the taxes paid on the items kept out of GST. In such a case, those who prefer hard drinks will have to pay more which is to a certain extent justified.  

On the other hand where the centralized registration is not permitted under GST, it would lead to extra cost upon the hotel industry in administering branches at local level. Since the branch transfer/self- supplies are also taxable in new regime; it would certainly block the working capital for the hotel industry, in case there are transfers to a branch. Apart from this the hotels have the option to take registration as “Input Service Distributor” (ISD) at its head office and manage the set-off of the input tax credit at its branches from head office itself. Taking registration as ISD does not mean that the branches would not be required to take registration under GST. ISD concept has been introduced for the convenience of the taxpayers and it has nothing to do with the GST compliance at the branch level.

Since GST has huge positive impact on hotel industry, they would be eagerly waiting for GST to get enforced.

by:
Keshav R Garg
(B.Com, FCA, CS, ISA (ICAI))
Faculty for GST: Indirect Tax Committee of ICAI
Author: Bharat's GST Ready Reckoner
            A Handbook on GST
Adviser for GST: Industries Association of Chandigarh 
Member: Indirect Tax Committee of CII, PHDCCI, MyGst.MyTax Foundation
Address: 3328, Sector 27 D, Chandigarh, India - 160 019
Phones: +91-172-461-3328, +91-98880-90008
Mails: mygst.mytax@gmail.com, keshavgarg@kdai.in   


Comments

  1. Lisa Williams30 June 2017 at 02:21

    great article for gst impact on hotel

    ReplyDelete
  2. Unknown26 March 2018 at 04:13

    The Impact of GST on hotel industry are shown effectively. It is a very big industry in India, with the travel segment. After the implementation of Goods and Services Tax (GST), the costs of hotel and travel industry are decreasing for customers and also decreasing the transaction costs for business owners.

    ReplyDelete
  3. zasma yasmin dawood30 December 2020 at 22:17

    Thanks for sharing this post. click here gst rate finder to know more about gst rate finder.

    ReplyDelete

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