The idea of “one country-one tax” was brought closer to reality when the GST Bills were passed in Rajya Sabha in August last year. And then the day finally arrived when the GST finally saw the light of the day. If implemented according to planned, GST will go down in India’s financial history as the largest tax overhaul that will create great opportunities for the citizens.
GST is seen to be a game-changer in the Indian economy as it is developing a unified Indian market and reduce the cascading effect of tax on the cost of goods and services. It will impact the Tax Structure, Tax Incidence, Tax Computation, Tax Payment, Compliance, Credit Utilization and Reporting, leading to a complete overhaul of the current indirect tax system.
GST will add uniformity to a market plagued by unnecessary additional taxes by subsuming various indirect taxes including central excise duty, services tax, additional customs duty, surcharges, state-level value added tax and Octroi. It is also estimated to boost GDP by 1-2 per cent and bring down inflation by 2 per cent over the long term. All goods and services have been put in the slabs of 5, 12, 18 and 28 per cent, with the exception of gold and precious metals.
Impact on Hospitality industry…
The GST rates fixed for hotels and restaurants, based on their tariffs and turnover has drawn mixed reaction from onlookers. As per the new GST regime, hotels with room rates between Rs 1000-2500 will be taxed at 12 percent and between Rs 2,500 – 5000 will fall under the tax slab of 18%. This is much lower than the 18-22 percent of what guests used to pay earlier. Budget room hotels that charge less than 1000 will attract low/or even nil taxes.
The prime concern however was with the luxury five-star hotels which according to earlier GST rates would have been charged 28%. But thanks to a revision of rates by the GST council, the GST rate on restaurants in five-star and luxury hotels have now been brought down from 28% to 18%, bringing it on par with standalone air-conditioned restaurants.
In the previous system of taxation, the restaurant sector was burdened with multiple taxes, charges and cesses. The diner was supposed to pay additional VAT, both service tax and charge, not to forget the cesses on each and every food and beverages bill. With the GST implementation, all taxes will form under a single bracket, thus lessening the burden on the diner.
However there would be a few anomalies here and there. Under the new system, the restaurants are broadly divided into two areas: non-AC and AC restaurants. Dining out in air conditioned restaurants (both those that serve alcohol and those that don’t) will attract tax of 18 per cent as against 10.6 per cent charged (including VAT and service tax) now. For low-cost restaurants, the tax rate would be 12 per cent as against 6 per cent now. Non-AC restaurants will charge 12 per cent GST on food bill. The GST rate for 5-star hotels will be 28 per cent.
It has been a long arduous journey before the GST Bill could see the light of the day. During its journey, the bill had been in the cauldron of political and economic debates several times, even stalling Parliament sessions on several occasions over refusal to pass it without further ratifications. The GST Council Meets for the last 6 months thrashed out solutions for a smooth rollout, but now the decks are cleared for its imposition. It is left to be seen of what its implications would be post July 1st and how soon the hospitality business, both large and small come to terms with this new regime and support its implementation with heart and soul.
– Samrita Baruah