Musafir Says

Travel & GST: Will they tango?

OPINION:  The long awaited and debated Goods and Services Tax (GST) has now been finally passed.

First tabled in 2011 by the then Congress led government, it has been a hotly debated subject as political parties opposed each other on the one hand and the states and the centre disagreed on numerous points.

The travel sector will no doubt be affected by the new tax regime given its pan India nature.

The main objective for the Bill is to do away with excessive and confusing taxation. The single GST rate will replace the many indirect taxes like service tax, value added tax, central sales tax, entry tax and impose one uniform indirect tax on goods and industries across the country.  “The GST bill will empower the states, will increase revenue of states as well as Centre. It’ll ensure that there is ‘no tax on tax’,” finance minister Arun Jaitley said on Wednesday in the Lok Sabha.

Impact on travel sector
For starters, a single tax rate will mean easier and seamless movement through states for the likes of transport and tour operators. States currently levy their own multiple taxes of between 25-30% on these businesses. Those in the restaurants and hospitality business would be able to avail of the ease of central warehousing and better supply chain management without the sword of multiple and complex tax rates hanging over their heads.

In other cases, hotels and resorts may be able to get a tax credit on renovation or construction of hotels and resorts. Also, taxes like the R&D cess, payable on franchise fees and technical know-how too are likely to be subsumed under GST. This will further simplify compliance and reducing levy of multiple taxes.

The travel industry in general has had a positive reaction the the GST tax. Anil Yendluri, CEO, Krishnapatnam Port says that a port operator, GST would bring tremendous reduction in the overall transportation and logistics costs. This would then translates to lower transit time and high rail-road utilisation by way of seamless inter-state movement of goods. “Also, distribution and warehousing services will be rationally structured and centralised, which will reduce the logistics costs for the benefit of the customers,” he said.

Still a long way to go
While the major impact of the Bill will get clearer in days to come as the GST rate is decided. It is still a little way off for now though. Once the Parliament passes the GST Bill, 50 per cent of the States shall have to ratify it followed by the assent of the president.  The GST council can be constituted only after the presidential assent.

Meanwhile, the Empowered Committee would need to develop consensus on complex matters such as tax rates, exemptions, threshold limits, dual administration etc.  Various legislations such as the Central GST law, Integrated GST law and 29 State laws including allied rules and notifications would need to be passed by the relevant legislative bodies.

“During this process, there would also be a need for a substantial engagement with the industry bodies. Meeting the timeline of implementing GST by April 1, 2017 would require these processes to run in parallel and in a time bound manner,” says Rajiv Dimri, leader, Indirect Tax Practice, BMR.

Once the tax is implemented though, it is expected to bring around growth for Indian economy on the whole. Chandrajeet Banerjee, Director General, CII says, “GST will bring in much needed transparency and higher investments in the coming years and we hope that a few percentage points to India’s GDP will be added through higher tax revenue and investments.” A similar GST tax regime is also implemented by many developed countries and has demonstrated benefits.

For now, the exact rate of the tax is still not known and will only be decided in the weeks or months to come. The Congress party has said though that the general GST rate should not cross 18%. As and when GST is finally implemented, it will be a major step for businesses in India. The money is still on the impact being positive.

Musafir Namah Bureau

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