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Divide & Rule

Monday, June 5, 2017, 14:11 Hrs  [IST]

A major initiative which was trumpeted to unify the country’s tax structure and remove the barriers seems to have misfired in its very mission itself. Rather than bringing a single tax structure, the much publicised Goods & Services Tax (GST) when finalised after marathon presentations, debates and sittings, only helped in creating confusion with four different rates, and even equal number of slabs within the same industry. Yes, the political leadership of the country has managed to prevail upon the unrelenting demands of the states with the lollipop of ‘compensation’, and keeping contentious goods like petroleum, liquor, etc., outside the purview of the GST, but for the larger private industry like travel, tourism and hospitality, the tax structure proposed does not give any reason to be happier than before or content about.

On the face of it, GST does not seem to have adverse effects on the industry. But a deeper analysis of the rate structure applicable to the tourism industry would reveal that the conventional thinking of tagging the industry as “luxury” is still strong amongst the policy-makers. Otherwise, how would one explain the rationale of setting higher tax for eating out at a restaurant with air-condition/heating facility in a country where temperatures vary from minus to 50-degree Celsius depending on the topography? Experts believe taxing goods rigidly in terms of those consumed by the poor and the rich has its problems, that will become more complex with the GST.

It’s still not clear whether the move to create a barometer of luxury hospitality in the country at INR 5,000 and to tax everything above that at 28%, was an oversight on the part of the expert panel or was it a clever move to bring 70% of Indian hotels under the ambit of highest GST slab? Theoretically, the highest slab is applicable only to 5-star hotels, but by putting a threshold figure of INR 5,000, practically the government has brought even good 2-star accommodations under the 28% bracket. That is the reason why, the whole hospitality industry, except OYO, are up in arms against GST. One can only excuse those experts who have never paid hotel bills from their pockets for this lack of knowledge about the industry.

The government has put the ball in the court of the industry to decide whether they want to sell their rooms below INR 5,000 and serve the travellers at 18% GST or lose the business. They seem to be in no mood to buy the tourism industry’s plea that Incredible India will lose out in the competition vis-à-vis other destinations in South East Asia where tax on the rooms is negligible. The Finance Minister himself has conceded that the GST on service sector is put on a higher pedestal, taking into account the credit they are eligible on taxes. The actual tax incidence on the industry will be much lower, he claimed. That being the case, it is anybody’s guess on the chances of any downward revision of the proposed rates by the Council!

P Krishna Kumar
Assistant Editor

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