GST putting excessive burden on Goa’s tourism industry
The whole of India recently celebrated the first anniversary of GST hailing it as a great reform. But in Goa, GST has adversely affected the tourism sector because of high taxation and a number of other provisions. Stakeholders lament that GST has made Goa uncompetitive compared to other destinations
09th July 2018, 02:06 Hrs
Minister of Panchayat, Mauvin Godinho, might have announced that he will fight to ensure that the Goods-and-Services-Tax (GST) rate on luxury hotels be brought down to 18%, but, GST has a number of other provisions as well, which have affected the tourism industry to such an extent that it has started losing a lot of business to other destinations in the world.
Ernest Dias, chief operating officer, SITA Travels and TCI, said, “When we as a tour operator buy a package from a hotel, we have to add 5% GST to it when selling it to a charter operator. On the other hand, if a charter operator goes to a hotel directly, he doesn’t have to pay 5% GST. Due to this, foreign tour operators are benefiting.”
When a hotel sells its rooms to a tour operator, a certain rate of GST (28% if per night tariff is Rs 7,500 and above) is already in-built in it. Over and above that, a tour operator has to add additional 5% GST when he sells those rooms as a package to a client in another country.
While a hotel can take input-tax-credit on the GST it pays, there is no provision for a tour operator to get any sort of tax credit on 5% he pays. Tour operators are extremely vital to Goa’s tourism, as they bring lakhs of tourists every year from Russia, UK, Middle East, Scandinavian countries and many other parts of Europe.
In many parts of Goa like Morjim and Arpora, the entire tourism trade depends upon the tourists brought in by such tour operators from foreign countries. The fact that GST has affected these tour operators adversely implies that it has already had repercussions on the tourism trade in many parts of Goa as well.
Jack Sukhija, member, Travel and Tourism Association of Goa (TTAG), said, “As it is, Goan tour operators work at wafer-thin margins. Because they can’t claim tax credit on 5% GST, they become expensive compared to foreign tour operators.”
Knowing that Goa has become an expensive destination due to GST, foreign tour operators can easily attract the tourists and take them to other competing destinations like Sri Lanka, Malaysia, Vietnam, Turkey, Egypt and etc.
Shivam Verma, general manager, Royal Orchid Beach Resort & Spa, said, “28% GST on luxury hotels is creating a huge impact already. If a company does an event in a luxury hotel, it will have to pay 28% GST, but, it can also take tax credit to the extent of tax already paid by its suppliers. However, if an individual stays in a luxury hotel, he will have to pay 28% GST and he will not be able to take tax-credit because there is no such provision for an individual to do so.”
“Compared to 28% GST on luxury hotels in India, Sri Lanka and many European countries have a tax rate of just 8-10%,” Verma added.
Even otherwise Goa was finding it very difficult to compete with other destinations, which offer better facilities and world-class infrastructure to tourists. Now with high GST, the tourism sector is really facing the heat of the competition.
When it comes to taking input-tax-credit, another problem has cropped up, which has resulted in companies shunning Goa to do their events. Suppose a Bangalore based company were to come to Goa to a luxury hotel for an event, it wouldn’t be able to take tax credit for 28% GST it has paid unless it employs an agent in Goa or it has a branch office in the state.
Sandip Bhandare, prominent chartered accountant, explained, “There are two parts of GST – central government’s share of GST (CGST) and state government’s share of GST (SGST). While SGST is local because it goes to the state government, even CGST has local character. Since the whole of GST takes a local character, an outside company doing an event in Goa can’t pay inter-state GST (IGST). It, therefore, can’t even get any input-tax-credit unless it caters to local character by having an agent or a local office in Goa.”
It’s unlikely that any company will take the trouble of hiring an agent or starting an office in Goa just to take input-tax-credit for doing an event. What these companies would rather do is go out of India for events, where they will pay lesser tax and there will be no complication of input-tax-credit as well.
Sukhija highlighted another issue, as he said, “Any restaurant selling alcohol, even beer, can’t take the benefit of a composition scheme. If not covered by a composition scheme, even a small restaurant selling alcohol has to file GST return every month provided its annual turnover is more than Rs 20 lakhs.”
A composition scheme is typically for small businesses wherein they don’t have to maintain a detailed book of accounts and can just pay a nominal tax on their revenues.
There are many small eating joints in the state selling fish-thali with beer. Most of them have a turnover of more than Rs 20 lakhs. None of them can take the benefit of a composition scheme.
It’s clear that GST is affecting state’s tourism industry badly on several counts. Unless relief is given on all these factors, it is unlikely that the tourism trade will see significant revival.
GST woes of tourism trade
Tour operators have to add 5% GST to the package cost when selling it to charter operators. But, if a charter operator directly buys a package from a hotel, he doesn’t have to pay 5% GST.
28% GST on hotel rooms with declared tariff of Rs 7,500 and more has made luxury hotels in the state more expensive than their competitors in rival destinations like Malaysia, Sri Lanka and etc.
If a company from outside of Goa does an event in the state, it can’t take input-tax-credit unless it employs a local agent or has an office in Goa.
This is driving companies away from Goa, as they are preferring to do events outside India.
Small restaurants can’t take the benefit of composition scheme, if they sell alcohol.
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