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Thursday, 10 October, 2019, 12 : 27 PM [IST]

GST relief brings cheer to the Tourism Industry

Putting all speculations to rest, the good news came on September 20 late evening from Goa. The Finance Minister, Nirmala Sitharaman announced the GST Council's decision to reduce the slabs for the hospitality industry. The GST Council not only reduced the upper cap to 18% from the earlier 28% on hotel rooms above tariff of INR 7,500, it also brought down the GST on rooms in the bracket of INR 1,000 to 7,500 to 12% from 18%. There will be no GST on hotel rooms below INR 1,000. No doubt, the decision, although belated, is a morale booster for hotel industry which is also on the grip of an overall slowdown in business.

In order to bring parity in GST rates between restaurants and catering businesses, the GST Council also decided to do away with the differential system and reduce the GST on outdoor catering from 18% to 5% at par with restaurants.

The GST announcement was preceded by slew of other incentives to Indian corporate entities by the Finance Minister. The government has decided to slash the Corporate Tax from 30% to 22% by bringing an ordinance in the tax laws and the Finance Act. These revised corporate tax benefits will be available for those companies which do not avail any incentives or exemptions of the government. The effective rate of tax for such entities will be 25.7% including surcharge and cess. All such companies also need not to pay any Minimum Alternative Tax (MAT).

Moreover, in order to boost Make in India, the government has added a new provision in the IT Act by which any domestic company incorporated on or after October 1, 2019 will have the option to pay tax at the rate 15% if they do not avail any incentive or exemption of the government. The effective rate of tax for such units will be 17.01%, including surcharge and cess.

The travel and tourism industry welcomed the decision of the GST Council and the government especially in the wake of slew of favourable announcements to shore up the economy in the wake of strong recessionary trends. TravelBiz Monitor brings together views of the industry stakeholders on the positive development.

Aashish Gupta, Consulting CEO, FAITH
It was not only about changing the tax rates, but also about changing the mindset of over 70 years of a developing economy, that tourism is luxury that needs to be taxed to reallocate resources to social sectors. The targeted outcome was to create an understanding that the government just doesn't tax a tourist, they tax the whole value chain of Indians behind it –entrepreneurs, direct employees and indirect employees. It was not getting competitive globally alone, but about getting competitive domestically. The targeted outcome was that only if we get attractive enough for the Indian tourists will we be able to attract foreign tourists. It was not about benchmarking to pre-tax GST rates, but the targeted outcome was about benchmarking to global GST average and priority they allocate to tourism.

Jean-Michel Cassé, COO – India & South Asia, AccorHotels
We welcome the decision to lower and further rationalise the GST structure on hotel room tariffs in what promises to be a major fillip for India's hospitality and tourism industry. This is a significant development and we commend the Honourable Finance Minister's decision to support the industry, and in the government's commitment to bolster economy and encourage business activity. Travelling, whether for business or leisure, is essential in a growing economy and we are glad to see a more favourable taxation environment.
Vivek Bhalla, Regional Vice President – SWA, InterContinental Hotels Group
We welcome the GST Council's decision to reduce the GST rates across segments for the hospitality industry. It is a positive move which should help improve the market's sentiment overall. With the festive and holiday seasons around the corner, the timing could not have been better.
Dr Ankur Bhatia, Executive Director, Bird Group
The GST rate cut comes as a welcome relief for the hospitality industry that was heavily taxed. Our taxes are highest when compared with competing foreign destinations such as Malaysia and Thailand. As a hotel it will help us pass on the benefit to consumers. The 10% cut in GST will help us make our offering more attractive for domestic and foreign travellers. The announcement comes as a welcome step and will definitely help boost demand.
Pratik Jain, Partner & Leader, Indirect Tax, PwC India
In line with the bonanza announced under Income Tax, the decisions taken by GST Council should also help in improving the market sentiments. As was rightly said by the Finance Minister, the decisions taken were primarily aimed at simplification and rationalisation of tax rates. Relaxation in filing of annual return for taxpayers having turnover of less than INR 2 crores will ease the compliance burden on such small taxpayers, given that they were anyways not required to file audit report. It needs to be seen how much and how soon simplification in annual return and audit report required to be filed by other taxpayers is notified as this has been a demand of industry for long now. Postponing the new GST return system to April 2020 (earlier proposed from October 2019) is a step in the right decision.
JB Singh, President and CEO, InterGlobe Hotels
It is a great sign for the hotel industry and it shows that the government is listening and taking steps to help boost the hospitality sector. However, the mid-market and economy hotel segment which drives volumes and consumption has seen no corrections and will not benefit from this amendment. The GST rate in hotels is still high and that coupled with the need for better tourism infrastructure and experiences continue to make the neighbouring tourism destination more attractive. Growing connectivity to these aggressive markets will continue to dilute the intra-India leisure demand. While these initiatives will provide temporary boost to certain segments, it is equally important that development of tourism infrastructure be given a lot of attention.
Varun Kapur, Executive Director, Travel Food Services
The recent announcement of relaxing corporate tax rate is a bold move by the government which will accelerate industrial activity and bolster investment across all sectors. It is bound to increase capital formation in the country, leading to business expansion and job creation. It will allow companies such as ours to accelerate expansion plans coupled with job creation. The trickle-down effect from the increased consumer confidence and spending power of the Indian consumer, will provide an impetus to growth.
Madhavan Menon, Chairman & Managing Director, Thomas Cook (India) Ltd
We truly welcome the announcement of the Finance Minister on the government's planned amendments in the Income Tax Act. This move will certainly see infusion of positive sentiment in the industry at large, more so in the current environment. The reduced corporate tax makes it one of the lowest in Asia and brings with it much desired impetus to investments in the country. Additionally, the much anticipated reduction in GST for the hospitality industry is a shot in the arm for the sector in creating a competitive playing field versus destinations in the Asian region, and hence cascading positive impact to inbound, domestic, business travel and MICE segments.
Jose Dominic, Chairman, CGH Earth Group
18% is a big relief though it still does not remove the competitive disadvantage. Countries in the South East Asia region have a prevailing tax of 5- 12%. Many countries in Europe enable VAT refund for foreign tourists. Israel has zero rate VAT on rooms applicable for foreign tourists.
Given the fact that foreign tourism is an export and given the fact of foreign tourism validation of Responsible Tourism and its penchant for remote and unknown parts of India, it warrants a Zero tax for Foreign Tourism. Foreign Tourism needs to be treated as a separate class as it has a clear case for being treated as exports and their turnover is separately identifiable.
Sonica Malhotra, Managing Director, MBD Steigenberger Hotel Group
We welcome the government's move to reduce the GST rates on hotel room tariffs as it will stimulate the growth of hospitality sector, and make India competitive against other internationally renowned hospitality chains. The move is also in line with the government's stated objective of turning India into a tourist hub and making it more attractive and competitive as a tourist destination. We are positive about this step as it will further enhance the ease of doing business and lower cost for the consumers since the hotels will be able to pass on the benefits of the rate cut by way of lower room rates.
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