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Saturday, 21 September, 2019, 10 : 33 AM [IST]

After tax sops for Indian corporates, decision to reduce GST on Hotels brings relief to Tourism sector

After announcing major tax sops for Indian industry in the afternoon, the decision of the GST Council to reduce GST burden on various sectors of the economy has brought much-awaited relief to the Indian industry. The GST council, which met in Goa yesterday, has decided to reduce GST burden on Hotels, Gems & Jewellery, Defence and Automobile sectors. 

Major beneficiary of the GST reliefs announced by the Council is the tourism and hospitality sector in the country which got the long pending demand of capping the highest tax slab reduced from 28% to 18% approved yesterday. As per the amended GST rates applicable to hotels effective from October 1, 2019, hotels with room tariffs below INR 1000 will not invite any GST. Hotel rooms which has roof tariff between INR 1,000 and INR 7,500 per night will be liable for a GST of 12% instead of 18% earlier. The tax on room tariff of above INR7,500 has been slashed to 18% from the existing 28%. 

Ministry of Tourism, Government of India and the private tourism industry in the country has been lobbying hard with the Finance Ministry for reduction on GST on the tourism sector in order to make India a competitive destination. There have been strong indications about a favourable decision from the GST Council this time around especially in the light of slowing down in the foreign tourist arrivals into the country in the last year. The travel and tourism industry welcomed the decision of the GST Council and the government especially in the wake of slew of favourable announcements on the part of the government to shore up the economy in the wake of strong recessionary trends.  

The Finance Minister had announced tax sops for Indian corporates yesterday including reduction of Corporate Tax from the existing 30% to 22% by bringing amendments to the IT Act and Finance Act through Ordinance route. 

 “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 season around the corner, the timing could not have been better,” said Vivek Bhalla, Regional Vice President, InterContinental Hotels Group (IHG), SWA.

 The two decisions will help improve the market sentiments, observed Pratik Jain, Partner & Leader, Indirect Tax, PwC India. “The decisions taken were primarily aimed at simplification of tax and rationalisation of tax rates. Reduction in tax from the peak rate of 28% to 18% for hotels having tariff of more than INR 7500 and from 18% to 12% for hotels having tariff less than INR 7500 should give a boost to the tourism industry. However, from a policy standpoint, it's better to not link the rate of tax with price points. Reducing tax rate on outdoor catering services from 18% to 5% brings in parity in rates with restaurants,” he added. 

Varun Kapur, Executive Director, Travel Food Services, said, ''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 ourselves 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.”

 Welcoming the government decision to cut Corporate tax, Madhavan Menon, Chairman & Managing Director, Thomas Cook (India) Ltd. said that the government decision “will infuse positive sentiment in the industry.” “With the overarching intent of catalysing growth and investment, we anticipate positive impact for the Travel & Tourism sector, and with it a boost to our Corporate and MICE travel segments as well."

 However, Jose Dominic of CGH Earth Group felt that even 18% will not totally “remove the competitive disadvantage” India has over the regional destinations. The prevailing tax rate on the sector in the SE Asia is 5 to 12%, he said. “Many countries in Europe enable VAT refund for foreign tourists. Israel has Zero Rate VAT on rooms applicable for foreign tourists,” he observed. Dominic also proposed a Zero Tax for Foreign Tourists for hospitality establishments located in rural India. “Foreign Tourism be treated as a separate class as that have a clear case for being treated as exports and their turnover is separately identifiable. Also, it will encourage and enable establishments in border regions and integrating them into the India identity and destination. We must harness our lowest hanging fruit which is our extraordinary cultural diversity. Measured by beneficial impact on ecology, community,economy and national security such a move will be seen to have high priority.”
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