Industry experts point out that higher tax rate would force people to avoid bills, thereby creating a parallel economy.
MUMBAI: While the implementation of Goods & Service Tax (GST) will remove multiple taxation and bring ease of doing business, hoteliers and restaurateurs point out that the expected quantum of tax — between 17 and 27% — will be rather high for the industry.
“The hospitality sector could be impacted after GST because it would appear that the total cost has gone up. Currently, while service tax at abated rate of 4.944% (5.6% after June 1) and VAT at 12.5% is levied on restaurant bills, after GST, you could see a much higher percentage of 24-25% (whatever the decided rate is) being charged on the bill,” says Prashant Deshpande, senior director, Deloitte Touche Tohmatsu.
The long-pending GST bill was approved by the Lok Sabha early this month, but could not be passed in the Rajya Sabha. The government will be trying again in the next two months. GST — a new uniform indirect tax rate — will subsume excise, service tax, state VAT, entry tax, octroi and other state levies.
Tejinder Singh Walia, president, Federation of Hotel and Restaurant Associations of India (FHRAI), said GST will offer reprieve to a highly-taxed hotel industry, provided it is capped at a lower rate. “Currently, the taxes are high and we have not been able to attract tourists unlike our neighbouring countries, where the tax burden on tourists is low.”
Bharat Malkani, president, Hotel and Restaurant Association of Western India (HRAWI), concurred, saying GST regime will definitely make doing business easier and reduce paper work for hotels, but taxes should be capped at 10%. “When the tax rate is high, it will negatively impact the revenue for hotels.”
While the draft national tourism policy-2015 formulated by the tourism ministry talks about implementation of GST and classifying all tourism & hospitality businesses in the lower GST slab, hoteliers said that the policy lacks clarity on the same. Hotels in India currently levy taxes in the range of 20% compared with just 2-5% on an average across the globe.
Deshpande of Deloitte said while the GST would bring down the costs of goods and services as a whole, anyone looking at the tax rate in isolation could say that the costs have increased after GST. “This is an area that the government needs to communicate with the people so that they have the correct perception of GST.”
Industry experts point out that higher tax rate would force people to avoid bills, thereby creating a parallel economy. “It will encourage a parallel economy, especially in the unorganised segment, as people will not opt for bills and there will be unaccounted transactions due to which the government will lose out on revenues,” said Riyaaz Amlani, president, National Restaurant Association of India.
“At the moment, we know that the expected impact will be 17-27%, but this would negatively impact the hospitality sector which already has a complicated tax structure,” said Mandeep Lamba, managing director-hospitality group at consultancy firm JLL India. Hoteliers and restaurateurs reckon the additional tax burden, if any, will be passed on to the customer, which will impact the spending capacity and consumption.
Shantha de Silva, head of South West Asia, InterContinental Hotels Group (IHG), said it’s too early to say what specific impact any potential tax levy may have on the tourism industry. “But it’s always going to be a balance between ensuring the industry and related areas.”