Impact of GST on Tour and Travel Industry

Rajdeep Saini

09 Nov, 2020

The Indian tour and travel industry which is valued at around 22 billion dollars in the year 2019; the tour and travel industry is one of those sectors which have witnessed significant growth post 2017. Experts witness that the implementation of new taxation law in the country i.e. Goods and Service Tax (GST) will further act in the benefit of the tour and travel industry. The GST facilitated growth in the tourism industry by cutting the cost for the customers, by reducing business transactions, reducing the taxes, but it also has its own number of challenges.

Though the GST was the most significant tax reform, yet it has been attracted an equal number of acclaim’s and criticism.

Impact of GST on sale of tour Packages

The tour packages can be divided into 2 categories:

Impact of GST on Inbound Tours

Tours which are organised within India for the International tourists are known as Inbound Tours.

• If the tour is on the principal basis then the location of performance is the location of supply and taxable at the rate of 5%.
• However, in the case of commission basis for tour and travels the location of the service provider is in India and taxable at the rate of 18%.

Impact of GST on Outbound Tours

All the tours organised by the tour operator, in a foreign country, for the tourist wanting to go abroad is known as Outbound Tour. The location of supply is the matter where the tour operator receives the commission from another tour operator from outside India shall be the place of tour operator which is India. In the situation where the tour is sold to the individual of the foreign country and the receipts are received in the convertible foreign country is exempt from GST.

Impact of GST on Tour and Travel Industry: Before and after

Prior to this new indirect taxation revolution, the state government had a number of different taxes such as luxury, VAT, and entertainment tax and on the other hand, a whole set of taxes is also levied by the Central government including central state tax, custom duty, service tax and excise duty.  All these taxes with different tax rates burdened the owner of the hotel business and hindered the growth of the tour and travel industry. This entire burden of taxes was dealt with the end customers.

After the new taxation system, one of the prime benefits of Goods and Service Tax (GST) to the tour industry is the elimination of multiple taxes levied by state and central governments^[1]. The central government commitment of ‘one nation one tax’ will further escalate ease of doing business in the tour and travel industry

Impact of GST on Airfares

The cost for the economy passengers is likely to remains similar to Pre-GST. The economy class air travel will further become cheaper with a tax rate fixed to 5% which was earlier 6%. However, travelling in business class does not get any relief under GST, the tickets of the business class got more expensive as the tax is going to go up from 9% to 12%. In the current race between the airline companies no company is expected to pass the heavy burden of taxation.

Impact of GST on Restaurants

The following are the rates of GST in restaurants

1. Restaurants situated outside the hotel premises having a duty of less than Rs. 7500/per day will attract 5% GST.
2. Restaurants situated inside the hotel premises have tax more than Rs.7500/per day will draw 18% GST.

Earlier, a restaurant that does not have Air Condition facilities levied 12% GST on the food whereas; restaurants having air conditioning facilities and also serve liquor including restaurants in 5 Star hotels have levied 18% GST. However later it was amended and a uniform rate was charged for both AC and Non-AC restaurants which were around 5%.

Impact of GST on Hotel Rooms

The rate of GST applicable to renting hotels, clubs, guest houses, inns, or any other commercial places whose sole purpose is to let out for lodging or residential purposes.

Some of the rates are mentioned below:

1. Room tariff per night up to Rs. 999/-: No GST will be charged.
2. Room tariff per night from Rs. 1000 to Rs. 2499/-: 12% of GST will be charged.
3. Room tariff per night from Rs. 2500 to Rs. 7499/-: 18% of GST will be charged.
4. Room tariff per night equals to or more than Rs. 7500/-: 28% of GST will be charged.

Negative impacts of GST on the Tour and Travel Industry

Multiple Registrations:

In any case, where there is a single central registration will now have to be registered at each state where the services are provided. Although, the service provider will have an opportunity to acquire different registrations for different services they provide.

Compliance Burden

In this new system, all the receipts or the invoices that go outward and inward will become complex as they have to be registered in the GST system. This will lead to an increase in problems such as an increase in working capital requirement and difficulty in credit matching under GST.

Conclusion

Read our article:What is the Effect of GST on Different types of Loans?