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GST on Hotel industry

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GST on Hotel industry

  1. 1. We T a sfo o po ate values th ough E a li g Capa ilities Setting GST Concern HIGHLIGHTS /IMPACT/APPROACH Setting GST Concern 1
  2. 2.  Our Background  Our Presence  Services Offered  GST Highlights  GST Advantages  Way Forward to GST  How STAN can help Contents Vision: “Transform corporate values through Enabling Capabilities” 2 Allrightsreserved/Preliminary&Tentative Setting GST Concern
  3. 3. View of Our Head office Located at Mohali Leading Assurance & Consulting organization well positioned to assist you in India, access to over team of 400 persons, 75 professionals with substantial industry background and experience. Our firm is having adequate client base spanning from multinationals, domestic public and private sector. We are available at 14 locations to provide PAN India access to our clients. Detailed business profile on each business segments & activities can be shared on demand. Our Background Allrightsreserved/Preliminary&Tentative Vision: “Transform corporate values through Enabling Capabilities” 3Setting GST Concern
  4. 4. Our Presence in India Branches Chandigarh Bengaluru Delhi Ludhiana Jammu Allrightsreserved/Preliminary&Tentative S.No Virtual Offices 1 Ahmedabad 2 Cochin 3 Hyderabad 4 Jaipur 5 Kolkata 6 Lucknow 7 Pune 8 Chennai 9 Mumbai 10 Indore Vision: “Transform corporate values through Enabling Capabilities” 4Setting GST Concern
  5. 5. S. Tandon & Associates – Leading Chartered Accountants firm in India Competent Synergies Pvt. Ltd.(15th Largest ITES company in India) Competent Finman Pvt. Ltd -.37th Largest member of BSE, NSE) Integrated Risk Insurance Brokers Ltd. (IRDA approved) Stan Professionals Pvt Ltd – Leading Consulting Company in India About our Group Allrightsreserved/Preliminary&Tentative Vision: “Transform corporate values through Enabling Capabilities” 5Setting GST Concern
  6. 6. Our Team • We have Tax and Advisory professionals, STAN has the team working on GST across all key sectors. • Our Policy Advisory Group comprises a specialized team of Multi-disciplinary team of professionals Constituting Chartered Accountants ,CFA, MBAs & Cost Accountants. • STAN subject matter professionals in goods and service tax, accounting, supply chain, project management, and IT with deep sector knowledge, provide an integrated service offering to our clients. Vision: “Transform corporate values through Enabling Capabilities” 6 Allrightsreserved/Preliminary&Tentative Setting GST Concern
  7. 7. Our Assurance Services Management & Operational (Process review) Audit Supply Chain Management (SCM) Process Audits HR Risk containment Audit Information Security (IS)/ITGS Audits Forex Management Audit Energy Audit Project Capitalization Audits Legal and Secretarial Audits Costing systems Review/Audits Revenue Assurance Audits Vision: “Transform corporate values through Enabling Capabilities” 7 Allrightsreserved/Preliminary&Tentative Setting GST Concern
  8. 8. GST HIGHLIGHTS Allrightsreserved/Preliminary&Tentative Vision: “Transform corporate values through Enabling Capabilities” 8Setting GST Concern
  9. 9. • GST introduced in 1991 by replacing federal Sales Tax. Levy of GST ranging from 13% to 15% in case of provinces and other at rate of 5%. • Tax to GDP ratio first increased and then decreased when rates we raised and then steady up down • Vat has not been money machine for Canada. • GST introduced in 1985 Peak rate of tax is 15% • GST increased the tax to GDP ration, • GST introduced as Constitutional bill in 2014. • Rate of Taxes Concessional 12%,standard rate 17-18%, Luxury rate 40%. GST Global Outlook 31% 36% New Zealand 34% 31% CANADA Australia • GST introduced in 1999 Peak rate of tax is 10%. • Tax to GDP ration in Australia increased after implementing GDP. 29% 30% 11% 9% • GST as VAT introduced in 1992 Initial rate of tax is 7%. • Tax to GDP ration in increased after implementing GDP. THAILAND 31+% 31 -% Vision: “Transform corporate values through Enabling Capabilities” 9Setting GST Concern Allrightsreserved/Preliminary&Tentative
  10. 10. GST is a consumption tax that is collected on sale of manufactured goods and services. Since it is a consumption tax it is passed on until the last stage, wherein the customer bears the tax, just like excise duty is imposed currently. Broking firm Nomura estimates that the GST would drive up headline CPI inflation by 20-70 basis points in the first year due to higher prices of electricity, clothing & footwear, health/medicine, and education after accounting for input taxes and potential asymmetric pricing behavior, However in the long term, lower tax and logistic costs, productivity gains and higher investments under the GST should structurally reduce inflation. As tax cascading disappears, the industry will move to the lagging regions because of lower costs and thus bring these into the growth dynamics. Stock market analysts are already zeroing in on stocks and sectors that will be positively impacted by the implementation of this key tax reform. As per estimates from the National Council of Applied Economic Research (NCAER), growth could increase by 0.9% to 1.7%. Preliminary results indicate that the growth in GDP can be between 2-2.5% with the implementation of a well-designed GST. The increase in exports can be between 10-14%. GST Impact on Indian Economy Vision: “Transform corporate values through Enabling Capabilities” 10 Allrightsreserved/Preliminary&Tentative Setting GST Concern
  11. 11. Pre GST Tax Structure IndirectTax Central Tax Excise Service Tax Custom State Tax VAT Entry Tax, luxury tax, Lottery Tax, etc. Allrightsreserved/Preliminary&Tentative Vision: “Transform corporate values through Enabling Capabilities” 11Setting GST Concern
  12. 12. Taxes Subsumed Under GST Allrightsreserved/Preliminary&Tentative Vision: “Transform corporate values through Enabling Capabilities” 12Setting GST Concern
  13. 13. Key Features of Ideal GST Destination based Tax Applies to all stages of the value chain Zero rated Export of all goods and services Seamless Credit Minimum floor rates No e ui e e t of C Fo Allrightsreserved/Preliminary&Tentative Vision: “Transform corporate values through Enabling Capabilities” 13Setting GST Concern
  14. 14. GST Intra State CGST SGST Inter State IGST (CGST+SGST) Credit Methodology Priority CGST CGST IGST SGST SGST IGST IGST IGST CGST SGST Proposed GST Structure Conceptual Framework Allrightsreserved/Preliminary&Tentative Vision: “Transform corporate values through Enabling Capabilities” 14Setting GST Concern
  15. 15. GST rates as per New Model GST Law Allrightsreserved/Preliminary&Tentative Intra State Taxable Supply Excise and Service Tax will be known as CGST Local VAT & Other taxes will be known as SGST Inter State Taxable Supply CST will be replaced by Integrated GST (IGST) Approx. Sum Total of CGST and SGST Import From Outside India Custom Duty In Place of CVD and SAD, IGST will be charged 14%+14 %=28% 14% 14% 14% 14% Moreover, Sec 8 of GST(Compensation for loss of revenue )Bill, 2016 makes provision for cess leviable which would be non vatable. Vision: “Transform corporate values through Enabling Capabilities” 15Setting GST Concern
  16. 16. GSTIN Code under GST State PAN Entity Blank Check 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 State Codes PAN Entity Code for Business Verticals of entities with same PAN in same State Left blank for future use Check Digit Digit 1-2 Digit 3-12 Digit 13 Digit 14 Digit 15 Allrightsreserved/Preliminary&Tentative Vision: “Transform corporate values through Enabling Capabilities” 16Setting GST Concern
  17. 17. The closing stock is held either in the form of raw materials, semi-finished goods, or finished goods, and must be used or intended to be used for taxable supplies. The benefit of such credit is passed on, by way of reduced prices, to the recipient. In current tax regime, duty/tax is added as product cost since the Input Tax Credit is not allowed. On transition to GST, ITC will be allowed, and this should naturally result in the reduction of base cost, and subsequently reduced final price to customers. In GST, you are eligible for Input Tax credit if you are a regular tax payer only. A taxable person opting for composition levy under GST is not allowed to claim Input Tax credit. You have invoices or any other prescribed duty/tax paying documents in respect of the closing stock of inputs (including semi-finished goods and finished goods). The date of invoices or any other prescribed duty / tax paying documents is within 12 months from the date of transitioning to GST. Eligibility conditions to avail Input Tax credit held in your closing stock Allrightsreserved/Preliminary&Tentative Vision: “Transform corporate values through Enabling Capabilities” 17Setting GST Concern
  18. 18. Special Provision ITC Person newly applying for registration fails to apply for registration with 30 from the date which he becomes liable for registration –ITC credit in respect of goods held in stock or contained in Finished 0r semi finished goods held in stock would not be available Person liable to be registered as per Schedule V • If “aggregate Turnover” exceeds Rs 20 Lacs • In Special category States i.e. North Eastern States + Sikkim , J&K Himachal Pradesh & Uttarakhand if “Aggregate turnover” exceeds Rs 10 Lacs Every Supplier(Except) • Supply of goods after completion of job work by registered job worker be included in turnover of principal not job worker Job Worker Person registered under existing law shall be required to be registered under GST Law Every person liable for registration as per schedule V -30 days from “Effective date” Aggregate Turnover Taxable +Non Taxable + Exempt+ Export of Goods & Services Excl. GST Taxes Incl. All supplies whether own or behalf of principal Situation Effective date Transfer /Succession Date of Transfer/ succession Amalgamation/ demerger ROC Certification giving effect high Court Order Other Cases Date on which supply exceeds threshold limit Vision: “Transform corporate values through Enabling Capabilities” 18 Allrightsreserved/Preliminary&Tentative Setting GST Concern
  19. 19. Registration Under Schedule V Registration If Turnover Exceed Mandatory Irrespective Turnover Person Making Inter State Supply Casual Taxable Person Reverse Charge E-Commerce Operator Non Resident Persons required to deduct Tax @1% Persons required to collect tax u/s 56 Person supplying goods on behalf of other registered taxable persons Input service Distributor Person who supply goods & Services other than branded services(through E commerce Operator) OIDAR Services Notified Persons Not Required Person supplying Exclusively goods/ services which are not liable or wholly exempt Agriculturist Vision: “Transform corporate values through Enabling Capabilities” Allrightsreserved/Preliminary&Tentative 19Setting GST Concern
  20. 20. Decoding Impact of GST on Hotel Industry from Model GST Law Perspective • GST a good hope for Hotel Industry Impact Allrightsreserved/Preliminary&Tentative 20Hotel Industry Impact
  21. 21. Current Scenario Vision: “Transform corporate values through Enabling Capabilities” Allrightsreserved/Preliminary&Tentative 21 Cascading Taxes Diversified Taxes F& B •The hotel and tourism industry hit various taxes across the channel by value added tax (VAT) to Output service tax •Major taxes that can be clearly seen on any receipt of hotel are VAT, luxury taxes and service tax. The VAT varies from state to state and lies between 12-14.5%. •Similarly, Luxury taxes depends on the proportion of room tariff and usually scales between 0-12 percent. •Service taxes are the once that fluctuates, it depends on the type of service that has been rendered or ordered. It is usually valued at 8.7% of the total room tariff. •Food rates vary from place to place and so does it bill/tax. •For food & beverage, 40% of the bill attracts the service tax and it comes to 5.8 percent when considered on total bill. For booking in hotels for occasions like marriages, ceremonies and meetings, an abatement of 30% is given and the effective service tax works out to 10.15% on the total charges. Bookings Hotel Industry Impact
  22. 22. Proposed Scenario Vision: “Transform corporate values through Enabling Capabilities” Allrightsreserved/Preliminary&Tentative 22 Four tier structure of 5, 12, 18 and 28 per cent of which the service sector will be taxed at 18 per cent. The 5 per cent tax slab on food was proposed, which is a positive outcome of subsumed taxes for hotels and restaurants. However, the 18 per cent levy on services or room revenue in our case, compared to our neighbouring countries which charge a Tourism tax between 4 to 7 per cent, rules out fair competition. Hotel Industry Impact
  23. 23. • Vision: “Transform corporate values through Enabling Capabilities” Allrightsreserved/Preliminary&Tentative 23 Federation Demands regarding Taxes The Federation of Associations in Indian Tourism and Hospitality has pointed out amendments to the draft Goods and Services Tax law that supports exception for tourism and hospitality businesses, and put them under 6-8 per cent tax slab just similar to other countries. The federations has been in talks with the finance ministry and governments of various states on the GST Law. In addition to the proposed VAT and Luxury tax which currently have a set off in the draft law, the federation’s other demands include a GST set-off which subsumes inter state levies on transportation, state electricity cesses and liquor tax, and making an exception for the sector in the classification of export services. It has highlighted that most nations recognise tourism as a critical economic driver and follow a Tourism Rate (TR) which is lower than 50% of the Standard Rate (SR) on other sectors. Hotel Industry Impact
  24. 24. Other Financial Impact 24 The hotel and tourism industry spend a lot of money on construction and renovation. They have to move with the times in order to remain competitive and attract customers. The money paid as taxes on the construction activities cannot be used as input credit to set off the taxes paid on the services offered by the hotels, restaurants, and tourism industry. The R&D cess which is applicable on technical know-how fees and franchise agreements in the industry is likely to become a part and parcel of GST. Thus simplify the taxation procedure for the hotel and tourism industry. 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. Allrightsreserved/Preliminary&Tentative Vision: “Transform corporate values through Enabling Capabilities” Hotel Industry Impact
  25. 25. Benefits 25Hotel Industry Impact Under GST, the single largest advantage would be uniformity of tax rates and applicability of single rate, better utilization of input credit and benefits to end user in terms of lower price thereby attracting more tourists and increase in GDP Numbers. •5 per cent tax slab on food, which is a positive welcome outcome of subsumed taxes for hotels and restaurants. •However, the 18 per cent levy on services or room revenue in our case, compared to our neighbouring countries which charge a Tourism tax between 4 to 7 per cent, rules out fair competition Excise, VAT and other taxes amount to upwards of 20% for the luxury sector. "If GST is estimated to be around 18%, it will be positive for the sector . •Entertainment, luxury and other service taxes in hospitality amount to more than 22%, compared with the proposed 18% under the GST regime. So GST should be positive for the sector When the VAT, service tax, and luxury tax are combined the total impact goes up and lies between 20 to 27 per cent. With the GST implementation, the multiple taxes would be replaced by one single tax, the rate of which is likely to be between 17 to 19 per cent. The hotel and tourism industry would benefit in the form of a lower tax rate which should help in attracting more tourists to India. However, the luxury tax is not applicable on all transactions and the GST rate may be at par or higher in such cases. The hotel industry would definitely prefer a lower GST rate between 10 to 15 percent. Allrightsreserved/Preliminary&Tentative
  26. 26. Allrightsreserved/Preliminary&Tentative Vision: “Transform corporate values through Enabling Capabilities” 26Setting GST Concern
  27. 27. CreatingAwareness •Awareness programs to reach stakeholders •Stakeholders to be kept informed about plan & progress implementatio n. ChangeAssistance •Its Critical for business process owners to manage attributed change in GST implementatio n in daily activities. IntegrateProcesses •Multiple systems and modules at various stages to be ready for GST •Systems/ applications to be identified, developed and tested thoroughly. Key Considerations for EntityImplementationofGST TimelyReadiness •Organization to ensure timely readiness for GST Implementatio n •Any delays attracts potential reputational risks. •Critical to remove roadblocks UnitingStakeholders •Different Stakeholders different interest. •Common grounds to be identified together under common clause. Allrightsreserved/Preliminary&Tentative Vision: “Transform corporate values through Enabling Capabilities” 27Setting GST Concern
  28. 28. Increase in the rate for service sector Non availability of CST Credit(Credit of IGST will be Available) Input service Credit to wholesalers and retailers Pruning of Exemption List Availability of credit on opening stock Credit on VAT paid goods available to Service provider Saving on Non payment of Octroi, Entry Tax, Luxury Tax, etc. Financial Impact Allrightsreserved/Preliminary&Tentative Vision: “Transform corporate values through Enabling Capabilities” 28Setting GST Concern
  29. 29. WiderImplicationofGST Suppliers Customers Fin & Admin Human Capital Training Legal Sales Strategies Information Systems Compliance • Sourcing from Appropriate Vendors • Maximizing tax credit from best practices • Appropriate Pricing • Structuring of financing • Identification of Correct GST Liability • Cash flow Impact • GST Compliances • Other Administrative Tasks • Trainingincl. workshopson rolesand responsibilities • Facilitating business readiness • GST impacts on contracts • GSTregistrations • Taxcredittransitions • Returnreporting • Other statutory compliances • Impact on current inventory • Pricing Strategies • Effect on Demand • System Design changes for GST compliance Allrightsreserved/Preliminary&Tentative Vision: “Transform corporate values through Enabling Capabilities” 29Setting GST Concern
  30. 30. Compliances Reporting of accumulate d credits New formats of invoices, waybills, returns/cha llans etc. Rate change to be implement ed Classificati on of goods and services Manner of computatio n and payment Periodical Returns Redesign IT Systems Statutory forms –likely to be discontinued Migration of registrations - PAN based GST Compliance Framework Allrightsreserved/Preliminary&Tentative Vision: “Transform corporate values through Enabling Capabilities” 30Setting GST Concern
  31. 31.  With diverse clientele, our diverse experience across multiple segments of industryIndustry Focus STAN Difference Project Management Capabilities Technical Skills  Strong working relationship and access with government Departments  Have blend of Highly Qualified team of professionals  Holistic suite of offering to ensure smooth GST transition  Success fully concluded GST impact assessment for clients Allrightsreserved/Preliminary&Tentative Vision: “Transform corporate values through Enabling Capabilities” 31Setting GST Concern
  32. 32. How STAN can Help in GST? Feasibility Studies • GST Impact Analysis on Business • Advisor on additional issued by authorities IT & Systems • Advising on Accounting, billing and invoicing systems • Assisting IT manual around solutions wherever required Migration & Compliance • Migration of VAT to GST • Identifying Additional Compliance responsibilities • Handling Legal Compliances i.e returns filing for you • Assisting with Registration across country Advisory • Advising Implications on various Provisions • Delivering comprehensive approach towards valuation of bundles consisting of services & Goods • Providing VAT implication guidance for contractual terms in future Agreements Allrightsreserved/Preliminary&Tentative Allrightsreserved/Preliminary&Tentative Vision: “Transform corporate values through Enabling Capabilities” 32Setting GST Concern
  33. 33. Our Major Credentials Vision: “Transform corporate values through Enabling Capabilities” 33 Allrightsreserved/Preliminary&Tentative Setting GST Concern
  34. 34. Allrightsreserved/Preliminary&Tentative Let’s talk For a deeper discussion of how this issue might affect your business, please contact: Tax & Regulatory Services – Indirect Taxes Madan Chauhan Kapil Vohra Sambhav Jain 0172-5098288, Ext. 107 0172-5098288, Ext. 117 0172-5098288, Ext. 102 madan.chauhan@staindia.org Kapil.Vohra@staindia.org Sambhav.jain@stan.in Vision: “Transform corporate values through Enabling Capabilities” 34 Allrightsreserved/Preliminary&Tentative Setting GST Concern

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