The new GST tax slabs of 5%, 12%, 18% and 28% are out and the hospitality industry is very disappointed with the announcement of GST. The industry believes that the higher tax slabs will impact and hinder growth, putting pressure on the bottom line and squeezing the margins of industry players. Hotels and guesthouses charging Rs. 1000 per room will pay 5% tax. Hotels charging Rs. 2000 to Rs. 4000 will pay 12% tax. Those charging Rs. 5000 as room rent will pay 18% tax and five star hotels will pay the highest slab rate of 28%. The luxury segment in the industry is specially cheesed off as they will have to bear the heaviest burden of tax. They believe it will drive away tourism in India which is, as it is, low in comparison to countries like Malaysia, Singapore and Thailand. Out of witch Malaysia attracts 24.7 million tourists and Thailand about 19 million, we are the second most populated country in the world with only 6.3 million tourists. In comparison to these countries where tax rates hover between 5% to 10%, the higher slabs of 18% and 28% will only decrease the overall profitability of the hospitality and tourism industry and drive away potential tourists from overseas.
Others argue that the much fairer and less complex GST will fuel domestic consumption and increase the growth rate at the same time increase the tax net as more people will be willing to pay taxes. It will rationalise the tax system and has been hailed as a major reform for the year which is to be welcomed.
Under GST, entertainment tax will be merged with service tax. Cinema halls, gambling and betting services will all come under the 28% tax bracket. This will be much lower than the current 40% to 45% which these service providers have to bear.
Others argue that the hotel industry is governed by three taxes VAT, luxury tax and services tax. These amount to a total tax of between 20% and 27%. Now with GST, this will be rationalised to around 19%. So in the long run, the hospitality industry will actually benefit. Most pundits believe that GST will have a positive impact in the long term and the trade industry should not try to resist it.
As for the airline industry, the average ticket price for an economy ticket will fall by around 5% to 10% and the prices for the business class will increase by a similar amount. The savings will not always be passed on to the end consumer.
All in all, people should have an open mind about GST and wait for a while till its impact is truly felt.