On 1st July 2017, India took a significant step implementing the biggest indirect tax reform since independence when it opted for a four-tier GST structure, 5% to 28%, which will subsume various state and central levies hitherto in place, to help create a seamless national market.
Indian Industry’s reaction to the GST implementation were mostly positive, qualifying it with hopes of further simplification of rules and consolidation of rates in the near future. The following statement from Confederation of Indian Industry (CII) clearly reflects our industry’s mindset.
“Over time, the Government should commit to converge to one or two rates. It is also important that the bulk of goods and services should fall within the standard rate of 18% and only as exception to go to the higher rate of 28%”. Source: The Economic Times.
Since we are on the subject of Indian industries, let’s talk about SMEs. The SME sector has been the growth engine of the Indian economy for decades now.
With SMEs playing such a major economic role, it is imperative that we keep our selves informed on the impact of GST on Small and Medium Enterprises. While some businesses may benefit, others might feel the pinch. This post focuses on the impact of GST on the hospitality business in India.
Impact of GST on Restaurant Business and Food Services.
Starting off the block with something that matters to us the most, something that helps keep our body and soul together – Food, and the impact of GST on Food Industry, is a thing very close to our heart.
A glance at the applicable GST rates:
|Type of Restaurant||Category||GST Rate|
|Non-Air Conditioned.||Not Serving Alcohol.||12%|
|Non-Air Conditioned.||Serving Alcohol.||18%|
|Air-Conditioned.||Serving & not Serving Alcohol.||18%|
|Partly AC, Partly Non-AC and 5 Star Restaurants.||Serving & not Serving Alcohol.||18%|
Note: Restaurants with less than Rupees 75 lakh annual turnover will be levied a GST rate of 5% under the Composition Scheme.
An impact analysis of food bills, Pre and Post GST implementation:
|Bill||Pre GST||Post GST (Non-AC)||Post GST (AC)|
|Bill Total Before Tax.||1000.00||1000.00||1000.00|
|Service Charge @ 10%||100.00||100.00||100.00|
|Service Tax @ 5.60%||61.60||NA||NA|
|Swachh Bharat Cess @ 0.2%.||2.20||NA||NA|
|Krishi kalyan Cess @ 0.2%.||2.20||NA||NA|
|*VAT @ 14.50%||145.00||NA||NA|
|GST@ 12% & 18%||NA||120.00||180.00|
|Total After Tax||1311.00||1220.00||1280.00|
*VAT on Alcohol = 20%.
- General impact not adverse.
- Adverse impact for hotels and restaurants in Karnataka which used to attract 4% composite tax, irrespective of turnover, before GST implementation. And while 4% composite tax was not collectable from consumers, GST is making it dearer to eat out.
Impact of GST on Tourism and Hospitality Industry
This sector stands to gain from the standardised and uniform tax rates regime. As the final cost to end users reduces, we can expect this nearly USD 140 billion industry to undergo radical changes post GST.
Applicable GST rates on Hotel Industry:
|Room Tariff Per Night.||GST Rate.|
|Less than Rs.1000/-.||No Tax.|
|Rs.1000/- To Rs.2499/-||12%|
|Rs.2500/- To Rs.7500/-||18%|
This article uses, for analysis purpose, the luxury tax rate which was levied in the state of Karnataka as per the below table.
Karnataka Luxury Tax Table.
|Tariff.||Luxury Tax Rate.||Service Tax.|
|Rs.500/- To Rs.1000/-||4%||No Tax|
|Rs.1001/- To Rs.2000/-||8%||*8.40%|
* Service tax @ 14% with abatement of 60%= 8.4%
Impact analysis of GST on Hospitality Industry:
|Before GST.||After GST.|
|*Swachh Bharat Cess||2.70||4.50||15.00||24.00||NA||NA||NA||NA|
|*Krishi Kalyan Cess.||2.70||4.50||15.00||24.00||NA||NA||NA||NA|
.* Swachh Bharat Cess & Krishi Kalyan cess = 0.5% on 60% of Tariff.
Note: Services like Complimentary breakfast which was taxed separately under the VAT regime will be taxed as a bundled service under GST.
Conclusion: At least as far as Karnataka is concerned, there is no adverse effect up to the GST slab of 18%. and the pinch will start once the tariff crosses over Rs.7500/- attracting 28% GST.
Impact of GST on Event Management Industry.
Considered as a sunrise industry in the service sector, whether commercial or non-commercial, the Event Management Industry is poised to grow at an envious rate to match the ever widening scope of events day by day.
With an annual growth rate of 28-30%, Indian Events Industry could reach $10 billion in near future. Exchange4media.com.
Applicable GST rates:
|Non-Entertainment Events: Seminars, Conferences, Workshops,Trainings, etc.||18%|
|Entertainment Events (1): like Theatrical Performance, Folk Dance, Indian Classical Dance, Circus, Drama, etc.||18%|
|Entertainment Events (2): like Movies, Amusement Parks, Joy Rides, Casino, Race Cource, Sporting Event, etc.||28%|
|Details||Non-Entertainment Events.||Entertainment Events.|
|Service Tax. (Before GST Regime)||15%||NA|
|Entertainment Tax (on an Average & Before GST Regime).||NA||30%|
Note: Non-Entertainment Events & Entertainment Events (1) are Exempt from GST if the Ticket price is <Rs.250/-
Conclusion: It is overall a positive impact for Event companies with Entertainment Tax getting subsumed in GST. (though it was an average 30% Entertainment Tax across the states, it was a whopping 60% in states like Uttar Pradesh).
Another positive impact is that you don’t have to visit the state Entertainment Department for NOC any longer. Just pay the GST through the usual channel.