The travel, tourism, and hospitality sectors have eagerly waited for the government’s decision on goods and services tax (GST) and how it will be implemented in the country. While Finance Minister Arun Jaitley has finalized the four-tier tax slabs, the industry players continue looking for more clarity on how positively or negatively GST will impact their respective businesses positively or negatively. When contacted, executives from travel and hotel companies said they could not comment as precise details were not available to decipher the impact of GST on their operations.
According to taxation experts, the impact of GST on the tourism and hospitality sectors will completely depend on the slabs under which the various services are being taxed.
For example, said Divyesh Lapsiwala, tax partner – GST, EY India, the tourism sector is taxed at around 30% of the tour value (i.e., an effective rate of 4.5% service tax is levied). “Understanding how such services will fit in the rate structure will be important. The industry was also hoping that the government would bring in the TOMS mechanism, also called tour operator’s margin scheme, which is practiced in the developed markets,” he said. However, there appears to be no clarity on the TOMS mechanism introduced in India.
Secondly, agency services for air tickets – domestic and international – are taxed at 0.7% and 1.4%, respectively, on the base fare plus fuel surcharge. “It is not clear whether such presumptive rates will continue and what the impact of this will be on net tax cost to consumers,” said Lapsiwala. As far as the hospitality sector is concerned, the biggest concern for hotel companies is whether their outstation clients will get GST credit or not. “Currently, a firm in Mumbai can claim GST credit for holding an event in a hotel in Goa. Will that be possible in the GST regime? It is not clear,” said Lapsiwala.
READ ALSO :
- US travel advisory will not hit arrivals: Tour operators
- Holiday the halal way
- Sebi mulls ban on social media tips
- Ask Harsh Roongta anything about personal finance: Are you working abroad?
- The Finance Ministry raises serious concerns over Moody’s methodology
For the consumer goods and durables industry, there seems to be a view that goods may be bucketed into two rate categories. 18% and 28%. “The segregation and classification of goods will be significant for this industry, and a detailed description of what will get taxed and by how much will decide the prices of those goods,” Lapsiwala added.
Quoting revenue secretary Hasmukh Adhia, reports suggested that service tax will likely increase from 15% to 18%. “Its applicability to all the services will certainly make services expensive. Services taxed at lower rates may also get impacted (like transportation) unless a framework similar to current service tax regulations is put in place,” said Lapsiwala.
While the rates, categories, and schedule equivalent details are awaited, the first reaction to the slabs is a thumbs up for the consumer essentials and other products, said Anil Talreja, partner, Deloitte.” This large and voluminous segment captures the local consumer and hence should be given heavy weight. This will result in an overall improvement of the cost structure and possibly impact prices. There would certainly be more pressure on the manufacturers to pass the benefits on to retailers and the ultimate consumer. Consumer electronics and luxury segments need to be carefully seen,” said Talreja.
