Impact Of GST On Tourism Industry

The Goods and Services Tax (GST) is a comprehensive indirect tax that has had a significant impact on various sectors in India, including the tourism industry. Implemented on July 1, 2017, the GST has replaced several indirect taxes and has led to both positive and negative impacts on the tourism industry. While it has simplified the taxation process and created a level playing field, it has also increased the tax burden on the industry, potentially impacting tourism in the country. In this context, it is essential to understand the impact of GST on the tourism industry and analyse its potential effects. The impact of GST on the tourism industry in India is mixed. While it has simplified the taxation process and created a level playing field, it has also led to an increase in the tax burden on the industry, which could potentially impact tourism in the country.

Introduction On Impact of GST on Tourism Industry

The GST has both positive and negative impacts on the tourism industry. On the positive side, it has led to the consolidation of various taxes, such as service tax, state tax, luxury tax, etc., which has simplified the taxation process. This has made it easier for tourists to understand the tax implications of their purchases, resulting in a more transparent and predictable taxation system. Additionally, the GST has helped to create a level playing field for businesses operating in the tourism industry, as it applies to all players in the industry, regardless of their size or turnover.

On the negative side, the GST has led to an increase in the tax burden on the tourism industry. This is because the GST rates applicable to various services offered in the tourism industry are higher than the rates of taxes that were previously applicable. For instance, the GST rate on hotel accommodation is between 12% and 28%, which is higher than the earlier service tax rate of 9%. This has led to an increase in the cost of hotel accommodation, which could potentially deter tourists from visiting India. Additionally, the GST has led to an increase in the cost of air travel, as the GST rate on economy class air tickets is 5%, while the rate on business class air tickets is 12%.

Simplification of Taxation Process

It is one of the optimistic impacts of the GST on Tourism sector. GST has replaced various indirect taxes likewise state tax, service tax, luxury tax and others with a single tax. It can simplify tax calculation and process of payment for operating businesses in this sector, creating it simpler for them to comply with tax regulations. In addition, the GST has helped tourists to know the tax implications of their purchases better. Previously, taxation process was complex, and tourists identified it complicated to understand the taxes they were paying on various services. To implementation of GST, tourists can now more transparent and predictable taxation method, improving trust and confidence in the tourism sector. Furthermore, the simplification of taxation process by GST has resulted in increased efficiency and ease of doing business in the tourism industry.

Creation of a Level Playing Field

It is another positive impact of GST on tourism sector is the creation of a level playing field. Before GST implementation, various taxes levied at various rates on various businesses type in the tourism. This made an uneven playing field, with larger companies often enjoying tax benefits and smaller companies being at a disadvantage. However, with the GST implementation, all businesses in this industry are needed to pay the similar tax rates, regardless of their size or turnover. This has created a more level playing field, where all businesses in the industry can compete on an equal footing.

In addition, the GST makes it simpler for small and medium sized enterprises (SMEs) in the tourism to comply with tax regulations. With the help of simplification in tax system, now SMRs can be more focused on improving their businesses instead of worrying about tax compliance. In whole, the creation of a level playing field through GST has ensured fair competition in the tourism industry and has benefited both larger companies and SMEs

Increase in Tax Burden on Tourism Industry

Increase in tax burden is the negative impacts of the GST on tourism. The GST rates for many services provided in the tourism are higher than the taxes that were applicable earlier. This has resulted in an increment in the services costs for tourists and has made tourism more expensive in India. For instance, the GST rate on hotel accommodation is between 12% and 28%, which is higher than the earlier service tax rate of 9%. This has led to an increase in the cost of hotel accommodation, making it less affordable for tourists. Additionally, the GST rate on air travel is also higher, with 5% on economy class air tickets and 12% on business class air tickets. This has resulted in an increase in the cost of air travel, impacting both domestic and international tourism.

Moreover, the GST has also affected the tour packages cost and other tourism related services. While the tax rates on some services have decreased, other have increased, leading to an overall increment in the costs of tourism services. The increase in the tax burden through GST has made tourism services more expensive in India, potentially deterring tourists from visiting the country.

Impact on Hotel Accommodation

The GST has had a significant impact on hotel accommodation in the tourism industry. As per the GST regime, the hotel accommodation is taxed at a higher rate as co% depending compared to earlier service tax regime. The GST rates for hotel accommodation range from 12% to 28% depending on the room tariff. This increases the tax burden and cause higher costs for hotel owners that are being passed on to tourists. The increment in cost of accommodation has impacted on both international tourism and domestic with tourists looking for more affordable options. Moreover, the GST has also impacted the online methods of hotel booking, which have seen a decline in business due to the increase in prices. The higher taxes have made it tough for these platforms to offer discounts and special rates, causing to a decrease in their revenue. The impact of GST on hotel accommodation has resulted in an increase in prices, making it less affordable for tourists. This, in turn, may have a negative impact on the tourism industry as tourists may opt for other destinations that offer more affordable accommodation options.

Impact on Air Travel

The GST has also had an impact on air travels in the tourism industry. According to GST regime, air travel is taxed at a higher rate as compared to the previous service tax regime. The GST rates for air travel are 5% for economy class and 12% for business class. This increment in tax had caused to higher costs for air travel that may affect both international and domestic tourism. The higher costs may make air travel less affordable for tourists, leading to a decrease in the number of tourists visiting India.

Furthermore, the GST has also affected the airline industry’s working capital, as they need to pay GST on inputs and then claim input tax credit later. This has resulted in an increase in the cost of operations for airlines, which may lead to higher ticket prices for consumers. Overall, the impact of GST on air travel may lead to higher costs for tourists, making air travel less affordable. This may, in turn, have a negative impact on the tourism industry in India.

Potential Impact on Tourism in India

The GST’s impact on tourism in India is a combination of positive and negative effects. On the one hand, the GST has simplified the taxation process and created a level playing field for businesses in the tourism industry. This has led to increased efficiency, transparency, and ease of doing business. Additionally, the GST has also led to increased government revenue, which may be utilized for developing infrastructure and other facilities for tourists.

On the other hand, the increase in tax rates under the GST has led to a higher tax burden on businesses and consumers, making tourism services more expensive. This may deter tourists from visiting India, impacting the tourism industry’s growth and development. Furthermore, the GST’s impact on hotel accommodation and air travel may also make these services less affordable for tourists, leading to a decrease in the number of visitors.

The impact of GST on the tourism industry in India is a mixed bag, with positive effects on the one hand and negative effects on the other. It is important for the government to strike a balance between revenue generation and promoting tourism’s growth and development by considering the impact of taxation policies on the industry.

Takeaway

The GST has had a significant impact on the tourism industry in India. While the GST has simplified the taxation process and created a level playing field for businesses in the tourism industry, the increase in tax rates has led to a higher tax burden on businesses and consumers, making tourism services more expensive. This may deter tourists from visiting India, impacting the tourism industry’s growth and development. It is important for the government to strike a balance between revenue generation and promoting tourism’s growth and development by considering the impact of taxation policies on the industry. Additionally, the government should focus on developing infrastructure and facilities for tourists, promoting sustainable tourism practices, and offering incentives to businesses to attract tourists to India. The impact of GST on the tourism industry in India is a mixed bag, and the government should continue to evaluate and revise its policies to promote sustainable and inclusive growth of the tourism industry.