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GST Impact on Hospitality Industry Business in India

The implementation of GST has had a tremendous impact on the Hospitality Sector. This significant industry is expected to rise to over Rs 32.05 lakh crore by 2028. The major reasons behind this growth are that the GST has helped the hospitality sector, by cutting costs for customers, harmonizing taxes, and reducing business transaction costs.

Hospitality Industry

Hospitality Industry before GST

Before GST came into effect, the Hospitality industry was liable to pay indirect taxes to both Central and State governments under the previous indirect taxation regime. And, the underlying challenge with such a regime was that there were many types of taxes like Excise Duty, Service Tax, and VAT. Additionally, each tax had its respective return and compliance burdens, and it became challenging to avail input tax credit. Moreover, as a result of the cascading effect of the VAT regime where the end consumer paid a tax on tax which augmented the end cost.

Previously, a hotel where the room tariff exceeded Rs.1,000, was liable for service tax at 15%. Also, an abatement of about 40% was permissible on the value of the tariff. Thus, lowering the effective rate of service tax to 9%. And, the Value Added Tax ranging between 12% to 14.5% would apply too.

Hospitality Industry after GST

GST was introduced in India with an objective to standardize tax rates and implement uniform rates on applicable items, in a categorized manner. Due to the implementation of GST, the hospitality industry benefited from the introduction of a single tax regime. The services that were previously taxed separately under the VAT regime are now taxed as a bundled services under GST. Now, hoteliers and restaurant owners are able to avail and utilize input tax credit in a better way.

Impact of GST on Indian Economy

We can expect an increase in the consumption of services in the hospitality industry as an outcome of the reduced costs to the end consumers. Furthermore, we can hope to see a lower churn and increased profitability for the business owners with compliance and regulatory hurdles easing out.

Due to the impact of GST, as the final cost to the end-user decreases, the industry attracts more overseas tourists than before. This results in improved revenues for the government. There are a number of advantages to this new tax regime that could help the industry’s growth in the long run. For instance, complementary food was taxed separately under VAT. However, now it will be taxed under GST as a bundled service.

The Benefits of GST

  1. The implementation of GST has led to administrative ease. It has helped abolish several other taxes, thereby, leading to a reduction in procedural steps and streamlining the taxation process.
  2. It has brought about more clarity for the consumers. Earlier, it was difficult to differentiate between Value Added Tax and an entertainment tax.  However, under the GST regime customers have a clear understanding of the tax they are paying.
  3. Prior to the implementation of GST, the tax paid on inputs such as food, cleaning supplies, etc could not be adjusted against the output without any complications. However, now the scenario is different, it is much easier in the GST regime.

Summing up:-

There are two sides to a coin. Therefore, although, there are many benefits of GST for the hospitality industry, there are certain downturns too. For example, it has led to some increased technological burdens and a cost of compliance. Further, there is still a lack of parity in terms of tariff with the Asian Counterparts. As India is emerging as an even bigger player in the global hospitality and tourism industry, we need services and tariffs to be at par with the global rates.

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