The Effects of GST on Hospitality & Travel

by CCH Online CCH Tax Online

The roll out of the Goods and Services Tax (GST) on 1 July 2017, over a year ago, has been hailed as the greatest tax reform of India since independence. The GST is a single consolidated tax that has replaced several other indirect taxes such as the VAT, the service tax, the entertainment tax etc. The idea of GST is simple; all goods and services are classified and slotted into tax slabs ranging from 0% to 28%. This has been both praised and criticized in equal measure. Let us look at the impact of the GST rollout on India’s travel and tourism industry.

Impact on flight costs

The implementation of the GST tax rates in India brought a slight reduction in the fares of economy class tickets in domestic flights with the previous 5.6% service tax being reduced to 5% GST. Business class travellers, however, now must shell out more for flight travel with a 12% GST charged on their tickets, while previously only 8.4% service tax was being charged.

If we consider an economy class ticket on a domestic airline with a base fare of Rs 2000, the total fare with taxes (pre-GST) would come to Rs 3305 while post GST this will be Rs 3288.5.

Similarly, the pre-GST business class base fare of Rs 8000 would add up to a total fare of Rs 13216.40 while the same ticket is likely to cost Rs 13520 post GST.

Train fares too rose marginally with a 5% GST vis-à-vis a 4.5% Service Tax levy in the pre-GST regime.

Impact on Hotel Tariff

When we consider calculation of GST on hotel room tariff, we're faced with a major challenge. The GST rates for accommodation (hotel) tariff are as follows:

Tariff (Per Day)                                            GST Applicable

Less than Rs 1000                                           0%

Rs 1000 - Rs 2499                                           12%

Rs 2500 - Rs 7499                                           18%

Rs 7500 and above                                         28%

The majority of domestic travellers prefer hotels with tariff in the second and third slab. This differential slab policy, however, has made hotel tariff GST calculation in India a matter of great confusion for prospective travellers. Worst hit are the high-end hotels that charge over Rs 7499 tariff.

Points to consider

While a general discussion about the impact of GST suggests that there is not much change in the average traveller’s spends after the rollout of the GST, this issue warrants a closer look. India is an emerging tourist destination. As such not much is done to attract international tourists who are likely to bring in revenue to the industry. Other countries such as Singapore impose merely about 7% tax on the hospitality and tourism industry to attract more tourists. Also, the 2016 demonetization drive severely impacted the tourism and hospitality industry. The imposition of GST within a year of this move has not done much to encourage Indians and foreign visitors to travel the length and breadth of the country. Much more needs to be done to keep the post-GST tourism industry buoyant.

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Created on Aug 17th 2018 00:38. Viewed 379 times.

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