Impact of GST on the Hospitality Industry

Monisha Chaudhary

30 Mar, 2024

The tax structure of India is divided into two types of taxes, which are direct and indirect taxes. GST is a type of non-discriminatory tax system implemented in July of 2017. The VAT, services tax, and luxury taxes were some of the major taxes that were imposed in the hospitality industry prior to GST, like the other industries in India. Before goods and service tax came into existence, the taxation process was more tedious and quite expensive. There has been a rapid growth in the hospitality industry in India. There have been many significant changes after the implementation of GST in the hospitality industry in India.

A massive budget of Rs 2,400 crore has been granted to the tourism industry of India in the union budget for the year 2023-2024, which is 18.24% of the budget of the previous year. By the year 2030, experts have predicted that the hospitality industry will contribute a total of 9.9% to the country’s GDP. India ranks 54^th in the World Economic Forum’s (WEF) Travel & Tourism Development Index.

What is the Hospitality Industry?

The hospitality industry has been in existence for thousands of years in India as well as globally. The hospitality industry has many different types of jobs under its large umbrella. Many different industries and businesses come under the head of the hospitality industry. The main aims of the businesses in this industry are hotels, restaurants, motels, resorts, travel and tourism, food and beverages, etc. The hospitality industry is a service-providing industry.

Pre GST – Hospitality Industry

The VAT system’s cascading effect, in which the final consumer was charged a tax on tax, raised the overall cost. Since central taxes like service tax could not be adjusted against local taxes (VAT) and vice versa, hoteliers and hospitality companies did not receive any input tax credits on the taxes they paid. It became difficult to claim an input tax credit since every type of tax had its own set of reporting and compliance requirements.

Post GST – Hospitality Industry

Complementary meals were once separately taxed under the value-added tax, but they are now subject to GST as a grouped service. The input tax credit is now easier to access and use for hotel and restaurant businesses. The hotel sector is seeing increased demand and growth due to the acceptable GST policy. More foreign tourists are expected for the hospitality sector since the ultimate cost to the client is decreasing. It would eventually boost tax income for the government. Standardized tax rates will benefit the hotel industry the most. Additionally, the ITC would be used effectively. This tax structure guarantees the unrivalled future growth of the hotel industry.

GST in Hospitality Industry

Positive Impacts of GST on the Hospitality Industry

1. Uniform Pricing: Before GST was implemented, there were various types of taxes in the hospitality industry; these rates used to change according to the state. A uniform strategy for pricing the services in the hospitality industry is easier to understand by consumers and businesses.
2. Boost in Tourism: With the implementation of the goods and services tax, many industries have witnessed a boost; the hospitality industry is one of them. As the tax structure is simpler and unified, it makes the country more tourist-friendly in nature. GST has made the tax system transparent and standardized for the whole of India.
3. Easy Administration: The Goods and Services Tax¹ decreased the number of taxing processes by eliminating a number of other taxes that were previously imposed. Consequently, it provided additional opportunities to simplify the tax procedure.
4. Quality of service has improved: With only one type of tax to be paid, the service quality of the hospitality industry has increased and improved a great deal.
5. Streamlined Tax Structure: With the introduction of the GST, the hospitality sector was subject to a variety of taxes, including service tax, taxation on VAT, luxury tax, and others. GST replaced them with one unified tax, streamlining the tax code and making compliance less difficult.
6. Tax Burden is Reduced: The cascading impact of taxes, in which one tax was imposed on another, resulting in a larger total tax burden, was avoided by the GST.
7. Adoption of Technology: As the majority of the GST tax system is online, it has become very effective in handling tax matters. With concepts like filing the GST return online, digital invoicing, etc., the accuracy of the calculations in taxes has increased.
8. Improvement in Compliance: GST mainly works on digital platforms; it makes the tax process system transparent, evasion of taxes can be reduced, and improvement in tax compliance can be seen.
9. Availability of Input tax credit: The advent of GST has made it simpler for providers of hospitality services to claim and obtain ITCs or input tax credits. They receive full input tax credits.

Conclusion

People from all around the world are interested in India’s expanding hotel sector. However, there is still a ton of room for this industry to grow on a national and worldwide scale. The hospitality industry is being led from the front by the hotel market. The hotel sector has been considerably impacted by the implementation of the Goods and Services Tax (GST). The majority of hotels were successfully able to adapt to the new tax system, but others have witnessed a sharp decline in income. To ensure that government objectives are carried out properly, the industry must become directly acquainted with the new GST regimes and adhere to them. However, many hoteliers assert that because GST would cut prices, customers will eventually gain. The formerly difficult tax procedure has been largely abolished. The entire process has been easier, faster, and more efficient because of the new, simplified GST (Goods and Service Tax), which has decreased prices and time spent while improving quality. Overall, both consumers and hoteliers should benefit from the new tax regime. Small businesses can help the government in implementing the GST and improve India’s tourism industry if they can get beyond the obstacle of learning the necessary technology and the new procedure.

Frequently Asked Questions

1. https://www.gst.gov.in/