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CURRENT TAXATION AND GST IN INDIA: IMPACTS ON HOSPITALITY AND TOURISM INDUSTRY

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CURRENT TAXATION AND GST IN INDIA: IMPACTS ON HOSPITALITY AND TOURISM INDUSTRY

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This slide share is about taxation policy in India and its impacts on hospitality and tourism industry. Its single taxation policy.

This slide share is about taxation policy in India and its impacts on hospitality and tourism industry. Its single taxation policy.

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CURRENT TAXATION AND GST IN INDIA: IMPACTS ON HOSPITALITY AND TOURISM INDUSTRY

  1. 1. IMPACTES ON HOSPITALITY AND TOURISM INDUSTRY 1 SANDEEP KUMAR IHTM,MDU
  2. 2. GST RATES GST RAES WORLDWIDE INTRODUCTION SERVICES & TAX APPLICABLE UNDER TOURISM & HOTELS Standard GST Rates As Per GST Council No. of Countries : 150 + 1.Existing and Proposed Tax Structure Model 2. Taxation Powers of state and Center Overview of GST Tourism Industry world over & India It’s Significance All Sectors Tourism & Hotel EXISTING & PROPOSED TAX STRUCTURE IN INDIA IMPACTES ON HOSPITALITY AND TOURISM INDUSTRY SEGEMENTS OF HOSPITALITY AND TOURISM INDUSTRY All Services & Taxes
  3. 3. SOURCES ON BEHALF OF INDUSTRY PLAYERS IMPACTS IMAJOR ISSUES IN PRESENT TAX Views Regarding GST By Different Sources Pros Of GST Cons Of GST What the Industry Players Said GST IN HOSPITALITY & TOURISM INDUSTRY CONCLUSIONS
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  7. 7. 7 It is a tax on Goods & Services with comprehensive & continuous Chain of Set off benefit from producers to retailer point. In other words, GST is an Indirect tax which is levy on manufacture, sale & consumption of all goods & services. It substitute most of the indirect taxes like excise, VAT, Service Tax, Entertainment Tax, Luxury Tax, CVD as well as SAD. It is based on the VAT principles . Introduction/Concept of GST
  8. 8. 8 It is likely be implemented w.e.f 1St July 2017. It is expected to be levied only at a destination level/Real Consumption Place not at a various points. Taxation power lies with both in the hands of CG as well as SG also. There will be no distinction between goods & services. After Introduction of GST, all the traders including manufacturer will be paying both the type of taxes (CGST & SGST). (Administered by one authority)
  9. 9. GST leads to immense scope, Opportunities as well as some challenges also. Centre is empowered to levy GST on Goods & Services upon the Production stage, while State have the power to tax on sale of goods. It subsumes a large no. of central & state taxes into a single tax. It is also expected that GST will mitigate the cascading effect of taxes. 9
  10. 10. 10 Existing Tax structure in India Existing Tax Structure Direct Tax Income Tax Wealth Tax Indirect Tax Central Tax Excise Service Tax Custom State Tax VAT Entry Tax, luxury tax, Lottery Tax, etc.
  11. 11.  Income Tax – on income, other than agricultural income  Excise Duty – on goods manufactured or produced in India  Custom Duty – on imports and exports  Service Tax – on specified services  Central Sales Tax – on inter-State sale of goods  Rates of Stamp Duty on 10 specified instruments CONCURRENT LIST OF BOTH • Stamp Duties, not including rates of stamp duty on 10 specified instruments.
  12. 12.  VAT/Sales Tax - on purchase or sale of goods, other than newspapers, within a State  Excise duty - on alcoholic liquor for human consumption  Rates of Stamp Duty – on other than 10 specified instruments  Land Revenue  Tax – on agricultural income  Toll tax  􀂾 Taxes on:  Land and buildings  Entry of goods in a local Area (Entry Tax or Octroi)  Consumption or sale of electricity  Goods and passengers carried by road or inland waterways  Vehicles  Professions, Trades, Callings and Employments  Luxuries, including taxes on entertainment, betting and gambling
  13. 13. 13 Proposed Tax structure in India Proposed Tax Structure Direct Tax Income Tax Wealth Tax Indirect Tax = GST (Except customs) Intra- state CGST (Central) SGST (State) Inter State IGST (Central)
  14. 14. 14 Model/Components of GST CGST (Central GST) • Replace central Excise Duty & service Tax. • Cover Sale transaction • Administered by CG • Additional Excise Duty • Countervailing Duty(CVD) • Additional Duty of Customs(ADC) • Surcharge, Education and Secondary/Higher Secondary cess • Levied on all intra-state sale/supplies of goods or services. SGST (State GST) • Replace State Vat, Entry Tax, Entertainment Tax, & Luxury Tax. • Cover taxing of Services • Administered by SG • Rate can be a bit higher than CGST rate . • It is expected that the duty and tax paid on closing stock would be available as credit. • Levied on all intra-state sale/supplies of goods or services. IGST (Inter-State GST)• Levied on all inter – state supplies of goods or services which are sold or transferred. • Applicable to imports of goods or services. • Expected to be equal to CGST as well as SGST. • It is expected that the duty and tax paid on closing stock would be available as credit.
  15. 15. 15 Benefit under GST Single taxation point. Uniform tax rate Common market. Reduces Transaction cost. Eliminates the cascading effect of taxes. Reduces corruption. Transparency. Increasing the tax base & raising compliance.
  16. 16. 16 Simplified tax laws. Increase in exports & employments. GDP Growth -HSBC estimates an 80 basis point rise in GDP growth over 3-5 years. NCAER pegs this at 0.9-1 International competitiveness Go Up by about 5%. Increased FDI Growth in overall Revenues. Prevention of unhealthy competition among states. Reduction in purchase price.
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  19. 19. IMPACTES ON HOSPITALITY AND TOURISM INDUSTRY 19
  20. 20.  Tourism represents world’s third largest export avenue in terms of global earnings after fuel and chemicals according to a representative from the UN World Tourism Organization (UNWTO). Tourism is responsible for one out of 11 jobs and 10% of the world’s economic output.  In addition, tourism’s value-added to an economy can also be increased by attracting a more diverse mix of tourist arrivals, using e-commerce to broaden the reach of local tourism businesses, and broadening the offer to include cultural, wildlife, and heritage tourism. 20
  21. 21.  The travel and tourism sector holds great strategic importance in the Indian economy providing several socio-economic benefits.  investments in infrastructural facilities such as transportation, accommodation and other tourism related services lead to an overall development of infrastructure in the economy.  Despite that the Tourism Sector, including Inbound Tourism pay a plethora of taxes and do not get any significant benefits as compared to other Export sectors. There are multiple taxes charged on the same Service/ Product offering by the Central as well as State Governments.  The Taxes levied on Inbound Tourism is amongst the highest in the country, and this is one of the major reasons for India losing Foreign Tourists to competing South East Asian Countries. 21
  22. 22.  India ranked 3rd among 184 countries in terms of travel and tourism’s total contribution to GDP in 2016. In India, the sector’s direct contribution to GDP is expected to grow by 7.9 per cent per annum during 2016–26.  The travel and tourism sector in India is estimated to account for 9 per cent of the total employment opportunities generated in the country in 2016, providing employment to around 38.4 million people during the same year. The number is expected to rise by 2 per cent per annum to 46.42 million jobs by 2026.  Travel & tourism’s contribution to capital investment is projected to grow at 6.3 per cent per annum during 2016–26, higher than the global average of 4.5 per cent.  Contribution of visitor exports to total exports is estimated to increase at 7.2 per cent per annum during 2016–2026 compared to the world average of 4.3 per cent  100 per cent FDI is allowed under the automatic route in tourism & hospitality, subject to applicable regulations and laws. 100 per cent FDI allowed in tourism construction projects, including the development of hotels, resorts and recreational facilities. Campaigns such as Incredible India & Atithi Devo Bhava were launched to harness the tourism industry’s potential  Foreign exchange earnings from tourism accounted for USD21.1 billion in 2015, witnessing growth at a CAGR of 10.5 per cent during 2006–15 22
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  24. 24. Service Tax VAT Customs and Excise Other Taxes -Room Rentals - Sale of Food and -Customs duty payable on import -Restaurant Services Beverages in -Luxury Tax on room of capital goods, -Banquet Services Restaurants rentals motor cars etc. - Sale of food under -Central Excise on -Convention Services Banquet arrangements -Entertainment Tax on manufacture of casinos, discos, videos 24 - Rent a Cab Services Bakery products - Dry Cleaning -Sale of goods from - State Excise on State Entry Taxes Services retail shops Alcohol Permit Taxes - In room sale of food (such as in - Health Club / SPA / room dining, mini Beauty Parlour bar etc.) Services -Alcohol Road Tolls - Internet Services Motor Vehicle Tax - Money Changing - UDF & PSF at the Services Airports
  25. 25.  Taxation of service offerings at multiple levels in the Tour Package. This leads to overall taxation to this sector In the range of 20-27% considering a loss of Input Tax credit of various taxes, like excise duties, import duties, luxury tax, entertainment tax etc.  Differential taxes across states which vary frequently in terms of Luxury Taxes and Local Vat.  Very confusing abatement patterns to derive the taxable component of the services and that too changing very often  High State Entry/Road Tax on commercial vehicles in certain states, which is a burden on the Foreign Tourists.  Many Small Player in the industry so Tax chain break at many level resulting into higher tax credit loss to players  No cenvat credit available for the infrastructure development which is huge cost to the Industry and resulting into higher costing 25
  26. 26.  Industry players said: 26 Name Date Remarks Garish Oberoi (FHRAI)Vice President 19 May 2017 The high incidences of taxes will make India uncompetitive when it comes to tourism as international tourists will skip the country as a destination. "The initial reaction is of great despair...28 per cent would be the end of the industry," Bharat Malkani Past President(HRAWI) ----Do------ "One of the biggest hurdles for Indian hospitality and tourism, in terms of attracting international tourists is its uncompetitive tax structure". DilipDatwani President(HRAWI) ----Do------ The government should realize 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. "This is simply not viable. Tourists will simply skip India," he added. RiyaazAmlani (NRAI)President ----Do------ 01 applaud the government's effort to keep GST at 5% for restaurants below 50 lacs and 12% for restaurants without AC 02Are disappointed with the high GST slab of 18 per cent for organized restaurants and 28 per cent for 5 star restaurants. This will not go a long way to promote tourism and tourism related jobs",. “The government has not realized the importance of providing impetus to hospitality and tourism sectors. Ritesh Agarwal , OYO Founder & CEO ----Do------ "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 travelers." Aashish GuptaCEO of hospitality industry body FAITH 20 May 2017 the GST Council failed to “make a correction” in a sector that creates a lot of jobs. “There was no need to classify certain hotels as pure luxury,” he said.
  27. 27.  Economic times: GST could kill tourism, say industry players  The Hindu:01 GST makes India inhospitable, says tourism sector. Owners of hotels, restaurateurs and tourism-related facilities disappointed with high rates, say GST is unviable 02Gurbaxish Singh Kohli, senior vice-president, HRAWI stressed that hospitality is not only a high foreign exchange grosser, it is also among the largest tax generators. “By the Prime Minister’s own declarations, the growth of the nation will parallel the growth of tourism. It’s perplexing that the industry is being taxed to death. If GST is not reconsidered, foreign exchange inflow will dry up sooner than later.”  27
  28. 28. GST Insights, studied Goods and Services Taxes at The Institute of Chartered Accountants of India  GST has brought mixed bag rates for tourism industry:  Travel in economy class of Air, Railways (AC Coaches) will be cheaper under GST, with tax rate of 5%. Business class travel will be at 12%.  Hotels & Restaurants are categorized on Tariffs & Infrastructure. i.e.  Hotel Tariff below 1000 = No Tax  Hotel Tariff b/w 1000- 2500 = 12% Tax  Hotel Tariff b/w 2500- 5000 = 18% Tax  Hotel Tariff above 5000 = 28% Tax  Non- AC Restaurants & No Alcohol = 12% Tax  AC Restaurant= 18% Tax  5 star Restaurants = 28% Tax  Therefore we believe here that people who prefer to stay & enjoy luxury, GST hasn’t brought much pleasantries for them. However for a common men it is not a tax burden. 28
  29. 29.  Apart of that experts observe that the implementation of GST will provide an edge to the sector by reducing costs for customers, harmonizing taxes, and reducing business transaction costs.  Under the GST regime: Under the Goods and Service Tax, the hospitality sector stands to reap the benefits of standardized and uniform tax rates, and easy and better utilization of input tax credit.  Final cost to end user decreases, we can expect the industry to attract more overseas tourists as compared to our neighbors.  This would ideally result in improved revenues for the government. Although, the Goods and Service Tax paid at 18% is higher than the prevalent rates, there are many pros to this new tax regime which could help the industry’s growth in the long run. Let’s have a look at these in detail: 29
  30. 30. 1. Administrative Ease 2. Clarity for Consumers 3. Improved Quality of Service 4. Travel will be largely cheaper under GST – • Air travel in economy class will be cheaper (5% under GST, against effective rate of 6% currently). Air travel in business class will be expensive (12% under GST, against the present rate of 9%) • Train travel in AC coaches will be cheaper (GST rate of 5%). Train travel in sleeper coaches will be exempt from tax (same as now) 6. Local transport industry will also be cheaper - services of cab aggregation such as Ola and Uber are likely to be slightly cheaper since they will be taxed at 5% against the present rate of 6%. So, moving around in a city will also be cheaper than the current levels. 7. Hotels are likely to be… cheaper? costlier? It’s complicated! budget hotels will become cheaper. 30
  31. 31. 1. Increased Technological Burden 2. Increased Costs 3. Alcohol and electricity are out of the purview of GST net. 4. Lack of Parity with Asian Counterparts 5. Revenue Leakage 6. High rates on luxury hotels could be upsetting 7. Restaurants/Dining/Eating out will become expensive. These rates are generally higher than the current rates.  Non-AC restaurants not serving alcohol: 12%  AC restaurants will be taxed at 18% GST  Restaurants serving alcohol (AC or non-AC): 18%  Five-star restaurants: 28% 31
  32. 32. 32 CONCLUSION  GST being a dynamic & comprehensive legislation which shall replace most of the Indirect Taxes of our Country.  Since it is a major indirect tax reform in India, there would be new legislation and procedures.  Most concerns expressed about the implementation of GST can be divided into 3 categories : i) Design Issues ii) Operational Issues iii) Infrastructure Issues  For GST to be effective there should be identical GST laws /procedures across states as well as the centre.  In the mean time ,those state who are not opposing against the implementation of GST may want assurances that their existing revenues will be protected.  Companies specializing in food and beverages operations could be the biggest beneficiaries of GST within the hospitality sector.  Exclusion of liquor from GST regime defeats the very purpose of bringing in a uniform tax structure across the nation  GST is glimmer of hope for the Hotel and Tourism Industry if we can keep the GST rate between 10 to 15%. GST might herald with its uniformity of tax rates  Hopefully, GST is going to be an efficient and harmonized consumption or destination based tax system and will remove the problems faced by the sector

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