How Will GST Affect the Tourism Industry?

The tourism industry is extremely broad. It comprises of food, entertainment, transportation, accommodation, and more. Thus, the GST impact on the tourism industry will be on multiple levels.

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The following are some of the ways GST will affect the tourism industry in India:

Higher Tax for Luxury Hotels

Under the GST regime, all 5-star hotels will be charged 28% and those offering air conditioning and/or liquor will be charged 18%. Hotels with accommodation tariff above Rs. 5000 per day will also have to pay a 28% tax.

Clearly, the new rates are higher than the old regime. For instance, service tax which was levied for accommodation was usually about 9%. Similarly, VAT on food was about 11% to 14.5%.

Damage to Tourist Attraction

Tax rates in other nearby tourist destinations such as Japan, Malaysia, etc. are only about 8% to 10%. Thus, India can potentially lose the interest of tourists from around the world due to the increased rates.

All points considered, GST is not completely bad for the tourism industry still. There are certain merits of the new regime too. For instance, calculation of taxes was complicated in the old regime. A hotel would need to calculate service tax for accommodation, VAT for food and beverages, and luxury tax for premium services, etc. However, GST has subsumed all these taxes. Also, budget hotels need to pay only 5% tax now. So, they can definitely benefit from the GST regime.