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Monday, 03 July, 2017, 15 : 07 PM [IST]

A ‘Taxing’ transition?

By the time this piece comes into black and white, the long-anticipated uniform indirect tax regime, Goods & Services Tax (GST) would have become a reality. The Finance Minister himself set off the ‘No Excuse’ warning bell after the 17th round of GST Council meet for those who were still in the wait and watch mode. The government simply did not care for who is ready and who is not with the roll out destined to become a reality as announced, come what may! The debate whether the change over to the new regime actually fulfills the vision of ‘one country – one tax’ has no relevance any more. The discussions now will be around the ‘confusion’ this switch over will create in the business and industry. The confusion galore was amply reflected in a Facebook post of a leading Chartered Accountant and Hotelier, “Businessmen are yet to learn it completely; bureaucracy is yet to study it completely to respond to public queries; professionals are yet to have clarity about various acts and rules; systems are yet to be understood by executors and stakeholders...”

Of course, such major changes are bound to create hiccups and confusions, in the short term. The perception in general is that everyone will learn it through trial and error, and even the policy-makers are conditioned for at least two months of initial ‘test run’. However, it is still unclear how fast a large section of small time vendors, distributors and retailers in the country will adapt to this e-way based system.

When considered as a package, the GST would not look that bad for the travel and tourism industry. But a deeper analysis of the rate structure applicable to the tourism players would reveal that the conventional thinking of tagging the industry as “luxury” is still strong amongst the policy-makers. Otherwise, how would one explain the rationale of setting higher tax for eating out at a restaurant with air-condition/heating facility in a country where temperatures vary from minus to 50-degree depending on the topography? Taxing goods rigidly in terms of those consumed by the poor and the rich has its problems that will become more complex with the GST.

The tourism industry stakeholders can sigh a partial relief as the GST Council reconsidered the ‘luxury’ threshold set at INR 5,000 for hi-end hotel rooms for 28% GST because of the timely hue and cry from stakeholders and the Tourism Department of the government itself. Although the demand was for a uniform 12% GST across verticals, the industry is seemingly satisfied with the final slabs set by the government.

The government has made a smart move by setting the GST slabs on the basis of tariff rather than hotel classification or hotel category. By doing this, the ball is now in the court of the industry to decide at what price they want to sell rooms. They can either sell at lower rates and lure more business or keep a higher tariff and take a revenue beating. The government seems to be in no mood to buy the tourism industry’s plea that Incredible India will lose out in the competition vis-à-vis other South East Asian destinations where tax on the rooms is negligible!

PKrishna Kumar
Bureau Chief, New Delhi
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