Impact of GST on Tourism and Hospitality Sector
ARTICLE
he Indian tourism and hospitality industry has emerged as one of the key drivers of
T growth among the services sector in India. Tourism in India has significant potential
considering the rich cultural and historical heritage, variety in ecology, terrains and
places of natural beauty spread across the country. Tourism is also a potentially large
employment generator besides being a significant source of foreign exchange for the
country. India has moved up 13 positions to 52nd rank from 65th in Tourism & Travel
competitive index. The tourism and hospitality industry in India recently got updated
with a new set of Goods and Services Tax (GST) rates that will be rolled out from July
1. It will be applied on their services based on the tariffs and turnover they draw, the
GST council has finalised.
Niharika Gupta, ACS
Kolkata GST has been one of the most awaited tax reforms for India. High GST rates
[email protected] on hospitality may prove to be detrimental for the sector. The high incidence
of taxes may make India less competitive when it comes to tourism as
international tourists may skip the destination. The government should
appreciate that countries like Myanmar, Thailand, Singapore, Indonesia and
others levy taxes ranging from 5 to 10 per cent. India cannot afford to have
these kind of complex and high GST. A lower tax rate for budget hotels sector
will ensure that the industry’s quality upgrade continues while delivering
standardized accommodation to millions of middle-class-travellers. People
like consolidation of taxes as it leads to greater transparency and will help
guests and buyers to understand the overall costs.
Before going into details of impact of GST on tourism and hospitality sector, it would be
pertinent to make the readers understand the importance of tourism and hospitality
sector for emerging economy like India.
l Tourism in India accounts for 7.5% of the GDP and is the third largest foreign
exchange earner for the country
l The sector’s total contribution to GDP has increased to US$ 136.2 billion by the
end of 2016 and is expected to further grow to US$ 280.5 billion by 2026
l The industry is expected to generate 13.45 million jobs across sub-segments such
as Restaurants (10.49 million jobs), Hotels (2.3 million jobs) and Travel Agents/
Tour Operators (0.66 million).
As explained in the above points, the importance of tourism and hospitality sector for a
growing economy like India, it would have been upheaval task for the government to fix
the GST rates for the sector given its size and importance.
The segments of Tourism and Hospitality Industry can be illustrated in the following
chart:
Segment of Tourism
and Hospitality Industry
Attractions Accommodation Transportation Travel Tour
& Catering Agents Operators
l Attractions: Another major component of the travel and tourism industry is
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IMPACT OF GST ON TOURISM AND HOSPITALITY SECTOR
One of the worries of the hotel industry which
ARTICLE
“attractions” such as theme parks and natural attractions
including scenic locations, cultural and educational is an important part of tourism industry is the
attractions, monuments, events & medical, social or
professional causes. non-inclusion of electricity and alcohol tax
in GST. There won’t be a single GST for the
l Accommodation & Catering: Accommodation could be
on hotels and motels, apartments, camps, guest houses, same. Hotels are known to consume tolls
lodge, bed & breakfast establishments, house boats, of electricity and not covering it under GST
resorts, cabins & hostels. In addition, tourist also requires
catering facilities, which include hotels, local restaurants,
means not being able to fetch benefit from the
cafeterias and retail outlets serving food and beverages. input credit of the two items.
l Travel Agents: A fragmented sector with a number of The luxury tax varies from zero to 12% depending on room
independent travel agents & many online businesses. type and state whereas the service varies according to the type
They also sell associated products such as insurance, car of service provided.
hire & currency exchange. Business travel agencies With the implementation of GST, the cascading taxes would
specialise in making travel and accommodation combine. AC restaurants and those with liquor license will be
arrangements for business travellers and promoting taxed at 18%. Restaurants with ` 50 lakhs or below turnover
conference trades. will go under the 5% composition. As per industry figures, the
tourism sector employs nearly 37 million people directly and
l Tour Operators: Tour Operators consists of customised indirectly and generates an annual revenue of about `14 lakh
tours, including travel, accommodation and sightseeing. Only crore.
outbound tour sold to a foreigner for visiting another foreign
country and the payment is received by convertible foreign GST ON HOTELS AND LODGES
exchange is exempt from GST. All other tours (including
inbound tours for foreigners) are taxable. GST paid on the HOTELS AND LODGES
purchase of tour packages from another tour operator can be
claimed as ITC and only the difference of tax can be paid to Room Tariff less Room Tariff Rs. Room Tariff Rs. Room Tariff Rs.
than Rs. 1,000 1000 to Rs. 2,499 2.500 to Rs. 4,999 5,000 or more
the Government. A tour operator must keep accurate records
to establish which part of the package relates to exempt
supplies, zero rated supplies (travel to a place outside India GST NIL
GST 12% GST 18% GST 28%
sold to foreign citizen) and taxable supplies. Through
Exemption
The factors which will impact the Tourism and Hospitality Notification
sector after GST comes into picture can be explained in under GST Input Tax Credit
available to hotels
Input Tax Credit
available to hotels
Input Tax Credit
available to hotels
the following chart:
Recipients of this Hotel Service can claim ITC only if they get registered in same state in
IMPACT ON which Hotels are situated
EFFECT OF
ELECTRICITY AND
TAxES
ALCOHOL GST on Hotels depends upon the tariff rate per day
l Impact on electricity and alcohol: One of the worries of
the hotel industry which is an important part of tourism
IMPACT OF GST ON industry is the non-inclusion of electricity and alcohol tax in
TOURISM GST. There won’t be a single GST for the same. Hotels
are known to consume tolls of electricity and not covering
it under GST means not being able to fetch benefit from
the input credit of the two items.
RESEARCH AND
TRANSPORTATION DEVELOPMENT l Transportation: It comprises airline companies, cruise
CESS services, railways, car rentals & lots more. A tourist’s
choice of transport would depend on the travel budget,
l Let us discuss the above points one by one: destination, time, purpose of the tour & convenience to the
Effect of Taxes: The tourism industry is one of the industries point of destination. With the advent of GST, transport
which are levied with multiple taxes. There are mainly three sector gets affected too. The supply of tour operator
taxes involved: services will be taxed @ 5% with no benefit of input tax
--By State Government credit facility.
n VAT
n Luxury tax l Research & Development Cess: The research and
--By Central Government development cess applicable on technical know-how and
n Service Tax. franchise fees are likely to be a part and parcel of GST
The value of Vat varies from 12% to 14.5% according to state. regime.
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IMPACT OF GST ON TOURISM AND HOSPITALITY SECTOR
ARTICLE
So, this is how tourism industry would likely be affected or
rather be impacted by the GST.
TAXABILITY UNDER GST
According to the CGST Law which neither contains the
exemptions nor the rates of taxation, it appears that most of the
services in relation to Tourism would be subject to levy of GST
as the same is to be treated as ‘supply’. Since taxable event is
supply, it is necessary to understand certain terms like
Location of Supplier of Service, Location of Recipient of
Service and Place of Supply. Tourism industry supplies bundle
of services and hence Composite Supply and Mixed supply
also comes into picture.
Consider an example of booking of air tickets which involves
cost of the meal to be provided during travel will be a composite
supply and tax will be calculated on the principle supply which
in this case is transportation through flight.
HOW TRAVEL & TOURISM INDUSTRY GETS credit chain and may result into additional cascading effect in
EFFECTED ? case of B2B transactions. Assessee opting for composition
Tourism Industry and travel and tour agents in particular are scheme shall not be entitled to take any credit. However, they
facing a tough time due to various factors like no commission need to pay Tax under RCM if they have any inward supply
by the airlines, direct marketing of airlines, higher taxation, from specified person and that shall add on to their cost.
poor tourist infrastructure etc. Their major sources of income Person foregoing negligible amount of input tax credit, can
are listed below: benefit by opting for composition scheme since their total
1. Commission from Airlines, Cruise Companies, Travel output liability shall reduce to 5% (2.5% CGST+ 2.5% SGST)
Insurance Companies and similar companies. as against current liability of 9% - 10%.
2. Sale Tour Packages, both inbound and outbound.
3. Travel Related Services like Visa, Passport etc. DO YOU HAVE TO REGISTER UNDER GST?
Travel agents / Tour Operators have to register for GST if they
One has to understand that an airline or a cruise ticket or the are providing supply of taxable services in the course of their
travel insurance policy issued by insurance companies is a commercial activities in India and the total (gross) taxable
contract between the airline/cruise/insurance company and the revenue, including of their agents is more than `20,00,000.
passenger. The travel agent is only a facilitator who receives While they do not have to register if their taxable revenue is
commission from the companies. Hence GST on these ticket/ `20,00,000 or less, they may be able to register voluntarily to
policy will only be consumed by the passenger and the agent claim the input tax credit on services purchased.
cannot use them as their input credit. However, the agent has The following two persons must register for GST, even if their
to pay GST on the commission received from the airline/cruise/ total taxable revenue is less than `20,00,000 threshold:
insurance companies on the reverse basis. - Tour & Travel agent who sold tour packages / air-tickets
on behalf of other taxable person whether as agent or
If the agent collects Service Fee as an additional charge from otherwise.
the passenger and show it in the invoice separately, he can - Tour Operator selling inter-state tour packages to
add GST on the service fee in the invoice and collect the same registered taxable person.
from the passenger. - Non-resident tour & travel agents.
COMPOSITION SCHEME IN TOURISM SECTOR CANCELLATION FEES
Composition scheme can be availed in tourism sector by the All cancellation fees are subject to GST at 5%. Credit note is
supplier who is engaged in providing any service or in any allowed to be issued for cancellation of air ticket or tour
other manner whatsoever, of goods, being food or any other package and GST must be adjusted accordingly. Any
article for human consumption or any drink (other than amendment charges are subject to GST at 5% for inbound/
alcoholic liquor for human consumption). outbound tour package and domestic air tickets. Amendment
charges for outbound tour package and international air ticket
Person whose aggregate turnover in the preceding financial are subject to GST at 5%. Arranging for visa and visa fees; (the
year did not have 50 lakh rupees and not having any Inter State service or administrative fees imposed) is subject to GST at
Supply and was neither a casual taxable person nor a non- 18%.
resident taxable person, can avail the benefit under composition
scheme. Rate of Tax in case of Composition scheme shall not GST IMPACT ON THE TRAVEL INDUSTRY
exceed 2.5% of CGST as well as 2.5% of SGST totalling to 5%. The taxable supplies for the travel industry are as follows:
(a) Inbound tour packages (domestic tour), whether sold to
Composition scheme proposed for restaurant, catering Indian resident or Foreign resident.
business which will exclude many small players out of the tax (b) Outbound tour packages (international tour) sold to Indian
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According to the CGST Law which neither
ARTICLE
resident.
(c) Agency services. contains the exemptions nor the rates of
(d) Passenger Transportation services (Sea, Land and Air
Transport). taxation, it appears that most of the services
in relation to Tourism would be subject to
Some of the related taxable purchases in the Travel Industry
which are subject to GST are as follows:- levy of GST as the same is to be treated as
(a) Hotel Accommodation; ‘supply’. Since taxable event is supply, it is
(b) Transportation/ hire of vehicles /car hire;
(c) Tour package;
necessary to understand certain terms like
(d) Restaurant meals and dining places; Location of Supplier of Service, Location of
(e) Tickets for entry to exhibitions, entertainment venues; Recipient of Service and Place of Supply.
(f) Hospitality (spas and resort);
(g) Agency commission; Tourism industry supplies bundle of services
(h) Booking Fees; and hence Composite Supply and Mixed
(i) Tourist Guide;
(j) Tour Deposit; supply also comes into picture.
(k) Amendment Charges for Inbound/Outbound Tour Package
and Domestic Air Ticket; taxation at multiple levels and absence of seamless input
(l) Travel Insurance; credit flow
(m) Visa Service Fees; and • Lot of business in this sector gets generated through
(n) Other related tourism services. online medium. Significant amount of clarity is required in
the law to deal with e-commerce players and aggregators
TRAVEL INSURANCE • Lack of Proper Infrastructure in terms of access,
Supply of travel insurance services for an inbound/outbound tour connectivity and services and many unorganised players
is taxed at applicable rates and the premium charged is subject in the industry
to GST at 18%. The arranging of travel insurance for inbound or • Non-availability of skilled & Semi skilled man power
outbound tour is taxed at applicable rates and the commission required for the industry to attract foreign tourist as well as
charged for such a supply is subject to GST at 18%. promote local tourism specially Eco Tourism & Rural
AIR TICKETING SERVICE FEE Tourism which lacks professional approach towards
service and customer satisfaction
• Profit mark-up/service fee charged for domestic flight is • Lack of Marketing, Branding & Promotion efforts for the
subject to GST at 18% rural, cultural and Eco friendly remote locations and their
• Profit mark-up/service fee charged for international flight conservations.
dis-embarking from India, is subject to GST at 18%
• If any service fee charged separately, then it is subject to CONCLUSION
GST @ 18%. GST has been one of the most awaited tax reform for India.
• Any commission received from airline is subject to GST @ We would like to draw inference that high GST rates on
18%. hospitality may prove to be detrimental for the sector which is
already reeling under the pressure of demonetisation and
TOUR PACKAGES liquor ban on highways. However, liquor should have been
Supply of Tour operator’s services are taxable at the rate of included in GST to ensure the seamless credit for tourism
5%. No input tax credit will be allowed when the rate of 5% is industry. Since, players in this industry make the most of its
charged. consumption. The high incidence of taxes may make India less
competitive when it comes to tourism as international tourists
When supply is made to a registered person, GST of 5% will may skip the destination. The government should appreciate
be charged depending upon the location of recipient of that countries like Myanmar, Thailand, Singapore, Indonesia
services i.e. Customer. Taxable invoice will be issued at the and others levy taxes ranging from 5 to 10 per cent. India
Customer’s registered address under GST. cannot afford to have these kind of complex and high GST. A
lower tax rate for budget hotels sector will ensure that the
When supply is made to an unregistered person, GST will be industry’s quality upgrade continues while delivering
charged depending upon the location of Tour Operator. Bill of standardized accommodation to millions of middle-class-
supply will be issued for the services rendered by Tour travellers. People like consolidation of taxes as it leads to
Operator. greater transparency and will help guests and buyers to
understand the overall costs.
The tour operator has to identify the nature of supply i.e.
whether the tour package services are intra-state or inter-state, Companies specializing in food and beverages operations
which in turn depends upon whether the recipient of service is could be the biggest beneficiaries of GST within the hospitality
registered or un-registered. sector. Food and beverages bills have multiple components
and can inflate the bills by 30-35%. A single-slab tax will
KEY ISSUES FACING THE TOURISM SECTOR benefit consumers and should lead to savings of 10-15% on
• High Multitude and Incidence of Taxes on account of the overall bill. CS
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