Sunday, 09 December, 2018

GST, note ban takes the fizz out of weddings

This is the season when people from all around India and the world travel to Goa to get married. However, this year, thanks to GST and demonetisation, people have curtailed spending on weddings to a good extent souring the party for everyone involved in the business

Story: Karan | Sehgal | 04th December 2017, 06:27 Hrs

In the last decade or so Goa has emerged as one of the most popular destination for weddings in India. The trend to get married in Goa was started by celebrities and really rich folks, but later even upper middle-class people started coming to Goa to get married and jumped on the bandwagon.
Everyone involved in organising a wedding - planner, caterer, artists and décor experts - are used to getting a lot of business in Goa, as wedding season starts every year in November. But, the year 2017 turned out to be different, as people have reduced their expenditure on wedding on account of number of reasons.
The main reason is that it has become very difficult for people to use cash to make payments without backed by a bill. Demonetisation, which was announced last year in November, has affected the ability of people to use cash, which comes from undeclared sources of income.
The liquidity got further tightened when Goods-and-Services-Tax (GST) was rolled out on July 1. Under GST regime, a business can get its tax liability reduced to the extent of taxes paid by its suppliers on inputs.
This practice of getting your tax liability reduced is called taking a tax credit. However, you can't take a tax credit if your supplier hasn't paid taxes. In short, GST has made it difficult for people to do business without paying taxes.
Leslie Remedios, owner, Reynold Weddings, said, "I think expenditure on weddings in Goa has come down by 50%. Moreover, fewer weddings are happening in the State compared to earlier. The number of weddings has come down by 20%. With demonetisation, there is lesser liquid fund in the market than what we used to have."
Moreover, destination weddings happen mostly in luxury & 5-star hotels, which are falling under a high GST rate of 28%. Remedios continued, "If per day tariff of a hotel room is Rs 7,500 or above, 28% GST rate is applicable. Since weddings are a personal event, people can't take any kind of tax credit on the same." Asked how people are cutting expense on weddings, Remedios replied, "They are spending less on décor, they are curtailing expenditure on artists and etc."
The impact of GST and demonetisation is far more significant on small vendors like florists, DJs, bands and mehndi-wallahs, who used to accept only cash in payments.
Few big wedding planners have tried to organise the sector by accepting payments only by cheque or internet banking. However, a lot of small vendors still prefer cash. Besides, people, who come to Goa for getting married, also like using cash for payments.
Paresh Naik, owner, Sobek Events, said, "We do our business on bills. We are not taking any cash. Because if a transaction is in cash (which means the other party doesn't want a bill and hence it goes unaccounted), how will we show that as an expense?"
Naik continued, "In this wedding season, we have seen a 30-40% drop in spending on weddings. But, I don't think the number of weddings has come down. Somewhere in the end of January or beginning of February 2018, there is a day particularly auspicious for wedding. A lot of hotels will be totally booked then due to weddings."
Naik is a wedding planner, who organises weddings in 5-star hotels in Goa in collaboration with wedding planners in cities like Mumbai and Delhi. All wedding planners seem to agree that spending on destination weddings has come down in Goa.
Lester Melo, owner, Wedding and Dreams, said, "We have seen a 10-15% drop in expenditure per wedding. This is due to GST and demonetisation to an extent. Having said that, I think we will see the positive impact of GST in a year or two years' time."
Melo explained, "As wedding planners, we buy electricals and fabric on which we used to pay VAT, but we weren't getting any input-tax-credit. Now with GST, we will be able to take input tax credit on such items, which will reduce our tax liability."
Like Naik, Melo also said that the number of destination weddings in Goa has not come down; however, the expenditure per wedding has come down, as people are choosing to spend less.
Melo continued, "Previously, Goa was an upscale wedding destination, but now a lot of middle-income people are also coming here for a wedding, which too has impacted per wedding spend. So the per wedding spend might have come down, but it is complimented by the growth in the number of weddings of middle-income segment."
In the last few years, a number of hotels have come up in North Goa away from the beaches. Such hotels are more affordable for weddings than beach side hotels, where elites go for getting married.
On the beach side, there are 7-8 hotels in Goa, which are wedding worthy and they do 30-40 weddings per season per hotel. That number is unlikely to come down this wedding season. However, expenditure per wedding is definitely looking to get reduced.
For now, wedding planners are hoping that they start getting benefits of input-tax-credit due to GST, but for that, they will have to wait for a while.

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