GST Issues in Travel & Tourism Sector
Travel and Tourism is one of key player in economic growth of our country. It has contribution is approximately 7.7 % of GDP and has generated approx. 2.45 million of new job, reflecting its importance in major employment generator. GST has streamlined taxation, however its complexities and limitations pose hurdles for the travel and tourism sector.
1. Multi-Tiered Tax structure on similar services
GST Rate on hotel accommodation varies from NIL where room tariff is less than 1000/- and goes up to 18% where room tariff exceeds 7500/-
The multiple tax structure not only complicate the compliance but also increases the tax burden on end user, especially when Input Tax credits are blocked.
If uniform rate is introduced for above services, compliance burden could ease to large extent.
2. Restriction on Input Tax Credit
Restriction on ITC on input services not only eats the chunk of profit of the business but also leads to cascading effects. Ultimately makes the end services costlier. To illustrate few-
a. Flat 5% GST without ITC on gross amount charged by tour operator.
b. Restriction on ITC on Hotel on accommodation services due to Place of Supply Rules.
c. Restriction on Inputs and Input services used for construction/renovation of immovable property.
If above restriction are relax, these will not only solve the problem of cascading effect but at the same time make the end services cheaper.
3. Place of Supply
For Domestic Services place of supply is location of recipient, however foreign tourist always faces the ambiguity over place of supply about classification of services
4. Mixed and composite supply
If two or more services are provided which is naturally bundled, it comes under definition of composite supply and attracts the GST rate of principle supply. If not naturally bundled it comes under definition of Mixed supply and attracts highest GST rates of goods or services; if goods and services could not be segregated.
It has led to long litigation as what constitute naturally bundled and what is not naturally, which leads to compliance risk for Tax Payer.
5. Operational and Compliance Burden
It is common for business houses to set up their business houses in multiple states for various business activity. Since GST is based on dual structure. Business house have to register in each state where they operate. These adds up the compliance cost of business houses
6. Refund for Foreign Tourist
Foreign tourist always faces difficulties in claiming the refund of eligible Inputs, while leaving our Country. Instead of multiple compliance, they prefer to forgo their refunds. It would be wise if centralized refund points could be established at the departure gate.
7. Sector Specific Relief
Each sector has their own problems and challenges to address, forming generalized rules for all the industry as a whole would not address sector specific issues.
If sector specific reliefs could be introduced after accumulating feedbacks from industry and policy maker, sector specific issue could be addressed in much better way.
Taxpayer objective is to earn profit for business and Revenue’s objective is increase the tax collection. Due to interpretation of statue, leads to ligation. These not only add to financial cost of both the player but also leads to waste of time. Ultimate objective of both the players is Nation Building by excelling in their sector. If GST council after taking feedback from the industry players who are on the ground could provide timely relief for sectors, multiple issues could be address without going under litigation.
The view expressed are personnel. Author may be contacted at cashubhamsawal@gmail.com, Mobile: 8888998239
