GST on Hotel industry

We T a sfo o po ate values th ough E a li g Capa ilities

Setting GST Concern

HIGHLIGHTS /IMPACT/APPROACH

Setting GST Concern 1

Our Background

Our Presence

Services Offered

GST Highlights

GST Advantages

Way Forward to GST

How STAN can help

Contents

Vision: “Transform corporate values through Enabling Capabilities”

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Setting GST Concern

View of Our Head office Located at Mohali

Leading Assurance & Consulting organization well positioned to assist you in India, access to over team of 400 persons, 75 professionals with substantial industry background and experience. Our firm is having adequate client base spanning from multinationals, domestic public and private sector. We are available at 14 locations to provide PAN India access to our clients. Detailed business profile on each business segments & activities can be shared on demand.

Our Background

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3 Setting GST Concern

Our Presence in India

Branches

Chandigarh

Bengaluru

Delhi

Ludhiana

Jammu

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S.No Virtual Offices

1 Ahmedabad

2 Cochin

3 Hyderabad

4 Jaipur

5 Kolkata

6 Lucknow

7 Pune

8 Chennai

9 Mumbai

10 Indore



S. Tandon & Associates – Leading Chartered Accountants firm in India

Competent Synergies Pvt. Ltd.(15th Largest ITES company in India)

Competent Finman Pvt. Ltd -.37th Largest member of BSE, NSE)

Integrated Risk Insurance Brokers Ltd. (IRDA approved)

Stan Professionals Pvt Ltd – Leading Consulting Company in India

About our Group

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Our Team

• We have Tax and Advisory professionals, STAN has the team working on GST across all key sectors.

• Our Policy Advisory Group comprises a specialized team of Multi-disciplinary team of professionals Constituting Chartered Accountants ,CFA, MBAs & Cost Accountants.

• STAN subject matter professionals in goods and service tax, accounting, supply chain, project management, and IT with deep sector knowledge, provide an integrated service offering to our clients.


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Setting GST Concern

Our Assurance Services

Management & Operational (Process review) Audit

Supply Chain Management (SCM) Process Audits

HR Risk containment Audit

Information Security (IS)/ITGS Audits

Forex Management Audit

Energy Audit

Project Capitalization Audits

Legal and Secretarial Audits

Costing systems Review/Audits

Revenue Assurance Audits


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Setting GST Concern

GST HIGHLIGHTS

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• GST introduced in 1991 by replacing federal Sales Tax. Levy of GST ranging from 13% to 15% in case of provinces and other at rate of 5%.

• Tax to GDP ratio first increased and then decreased when rates we raised and then steady up down

• Vat has not been money machine for Canada.

• GST introduced in 1985 Peak rate of tax is 15% • GST increased the tax to GDP ration,

• GST introduced as Constitutional bill in 2014. • Rate of Taxes Concessional 12%,standard rate 17-18%,

Luxury rate 40%.

GST Global Outlook

31%

36%

New Zealand

34% 31%

CANADA

Australia

• GST introduced in 1999 Peak rate of tax is 10%. • Tax to GDP ration in Australia increased after

implementing GDP.

29%

30%

11% 9%

• GST as VAT introduced in 1992 Initial rate of tax is 7%. • Tax to GDP ration in increased after implementing GDP.

THAILAND

31+% 31 -%



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GST is a consumption tax that is collected on sale of manufactured goods and services. Since it is a consumption tax it is passed on until the last stage, wherein the customer bears the tax, just like excise duty is imposed currently.

Broking firm Nomura estimates that the GST would drive up headline CPI inflation by 20-70 basis points in the first year due to higher prices of electricity, clothing & footwear, health/medicine, and education after accounting for input taxes and potential asymmetric pricing behavior,

However in the long term, lower tax and logistic costs, productivity gains and higher investments under the GST should structurally reduce inflation.

As tax cascading disappears, the industry will move to the lagging regions because of lower costs and thus bring these into the growth dynamics.

Stock market analysts are already zeroing in on stocks and sectors that will be positively impacted by the implementation of this key tax reform.

As per estimates from the National Council of Applied Economic Research (NCAER), growth could increase by 0.9% to 1.7%.

Preliminary results indicate that the growth in GDP can be between 2-2.5% with the implementation of a well-designed GST. The increase in exports can be between 10-14%.

GST Impact on Indian Economy


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Setting GST Concern

Pre GST Tax Structure In

dir

ec

t T

ax

Central Tax

Excise

Service Tax

Custom

State Tax

VAT

Entry Tax, luxury tax, Lottery Tax, etc.

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Taxes Subsumed Under GST

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Key Features of Ideal GST

Destination based Tax

Applies to all stages of the value chain

Zero rated Export of all goods and services

Seamless Credit

Minimum floor rates

No e ui e e t of C Fo

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GST

Intra State

CGST SGST

Inter State

IGST (CGST+SGST)

Credit Methodology Priority

CGST

CGST

IGST

SGST

SGST

IGST

IGST

IGST

CGST

SGST

Proposed GST Structure

Conceptual Framework

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GST rates as per New Model GST Law

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Intra State

Taxable Supply

Excise and Service Tax will

be known as CGST

Local VAT & Other taxes will

be known as SGST

Inter State Taxable Supply

CST will be replaced by

Integrated GST (IGST)

Approx. Sum Total of CGST

and SGST

Import From Outside India

Custom Duty In Place of CVD and SAD, IGST will be charged

14%+14%=28%

14%

14% 14%

14%

Moreover, Sec 8 of GST(Compensation for loss of revenue )Bill, 2016 makes provision for cess leviable which would be non vatable.



GSTIN Code under GST

State PAN Entity Blank Check

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

State Codes

PAN

Entity Code for Business Verticals of entities with same PAN in same State

Left blank for future use

Check Digit

Digit 1-2

Digit 3-12

Digit 13

Digit 14

Digit 15

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The closing stock is held either in the form of raw materials, semi-finished goods, or finished goods, and must be used or intended to be used for taxable supplies.

The benefit of such credit is passed on, by way of reduced prices, to the recipient. In current tax regime, duty/tax is added as product cost since the Input Tax Credit is not allowed.

On transition to GST, ITC will be allowed, and this should naturally result in the reduction of base cost, and subsequently reduced final price to customers.

In GST, you are eligible for Input Tax credit if you are a regular tax payer only. A taxable person opting for composition levy under GST is not allowed to claim Input Tax credit.

You have invoices or any other prescribed duty/tax paying documents in respect of the closing stock of inputs (including semi-finished goods and finished goods).

The date of invoices or any other prescribed duty / tax paying documents is within 12 months from the date of transitioning to GST.

Eligibility conditions to avail Input Tax credit held in your closing stock

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Special Provision ITC

Person newly applying for registration fails to apply for registration with 30 from the date which he becomes liable for registration –ITC credit in respect of goods held in stock or contained in Finished 0r semi finished goods held in stock would not be available

Person liable to be registered as per Schedule V

• If “aggregate Turnover” exceeds Rs 20 Lacs • In Special category States i.e. North Eastern States + Sikkim ,

J&K Himachal Pradesh & Uttarakhand if “Aggregate turnover” exceeds Rs 10 Lacs

Every Supplier(Except)

• Supply of goods after completion of job work by registered job worker be included in turnover of principal not job worker

Job Worker

Person registered under existing law shall be required to be registered under GST Law

Every person liable for registration as per schedule V -30 days from “Effective date”

Aggregate Turnover Taxable +Non Taxable +

Exempt+ Export of Goods & Services Excl. GST Taxes Incl. All supplies

whether own or behalf of principal

Situation Effective date

Transfer /Succession

Date of Transfer/ succession

Amalgamation/ demerger

ROC Certification giving effect high Court Order

Other Cases Date on which supply exceeds threshold limit


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Setting GST Concern

Registration Under Schedule V

Registration

If Turnover Exceed Mandatory

Irrespective Turnover

Person Making Inter State Supply

Casual Taxable Person

Reverse Charge

E-Commerce Operator

Non Resident

Persons required to deduct Tax @1%

Persons required to collect tax u/s 56

Person supplying goods on behalf of other registered taxable persons

Input service Distributor

Person who supply goods & Services other than branded services(through E commerce Operator)

OIDAR Services

Notified Persons

Not Required

Person supplying Exclusively goods/ services which are not liable or wholly exempt

Agriculturist


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Decoding Impact of GST on Hotel Industry from Model GST Law Perspective

• GST a good hope for Hotel Industry

Impact

••

••

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20 Hotel Industry Impact

Current Scenario


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Cascading Taxes

Diversified Taxes

F& B

•The hotel and tourism industry hit various taxes across the channel by value added tax (VAT) to Output service tax

•Major taxes that can be clearly seen on any receipt of hotel are VAT, luxury taxes and service tax. The VAT varies from state to state and lies between 12-14.5%.

•Similarly, Luxury taxes depends on the proportion of room tariff and usually scales between 0-12 percent.

•Service taxes are the once that fluctuates, it depends on the type of service that has been rendered or ordered. It is usually valued at 8.7% of the total room tariff.

•Food rates vary from place to place and so does it bill/tax.

•For food & beverage, 40% of the bill attracts the service tax and it comes to 5.8 percent when considered on total bill.

For booking in hotels for occasions like marriages, ceremonies and meetings, an abatement of 30% is given and the effective service tax works out to 10.15% on the total charges.

Bookings

Hotel Industry Impact

https://www.legalraasta.com/service-tax-registration/

Proposed Scenario


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Four tier structure of 5, 12, 18 and 28 per cent of which the service sector will be taxed at 18 per cent.

The 5 per cent tax slab on food was proposed, which is a positive outcome of subsumed taxes for hotels and restaurants.

However, the 18 per cent levy on services or room revenue in our case, compared to our neighbouring countries which charge a Tourism tax between 4 to 7 per cent, rules out fair competition.


•


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Federation Demands regarding Taxes

The Federation of Associations in Indian Tourism and Hospitality has pointed out amendments to the draft Goods and Services Tax law that supports exception for tourism and hospitality businesses, and put them under 6-8 per cent tax slab just similar to other countries.

The federations has been in talks with the finance ministry and governments of various states on the GST Law.

In addition to the proposed VAT and Luxury tax which currently have a set off in the draft law, the federation’s other demands include a GST set-off which subsumes inter state levies on transportation, state electricity cesses and liquor tax, and making an exception for the sector in the classification of export services.

It has highlighted that most nations recognise tourism as a critical economic driver and follow a Tourism Rate (TR) which is lower than 50% of the Standard Rate (SR) on other sectors.


Other Financial Impact

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The hotel and tourism industry spend a lot of money on construction and renovation. They have to move with the times in order to remain competitive and attract customers. The money paid as taxes on the construction activities cannot be used as input credit to set off the

taxes paid on the services offered by the hotels, restaurants, and tourism industry.

The R&D cess which is applicable on technical know-how fees and franchise agreements in the industry is likely to become a part and parcel of GST. Thus simplify the taxation procedure for the hotel

and tourism industry.

The hotel Industry is hopeful that implementation of Goods & Servies Taxes (GST) will impact it positively, but there is concern about the possible high rate of GST for the industry. The industry is

awaiting clarity on the GST rate. The actual impact of GST on the hotel industry will depend on the GST rate applicable to the

industry.

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Benefits

25 Hotel Industry Impact

Under GST, the single largest advantage would be uniformity of tax rates and applicability of single rate, better utilization of input credit and benefits to end user in terms of lower price thereby attracting more tourists and increase in GDP Numbers.

•5 per cent tax slab on food, which is a positive welcome outcome of subsumed taxes for hotels and restaurants.

•However, the 18 per cent levy on services or room revenue in our case, compared to our neighbouring countries which charge a Tourism tax between 4 to 7 per cent, rules out fair competition

Excise, VAT and other taxes amount to upwards of 20% for the luxury sector. "If GST is estimated to be around 18%, it will be positive for the sector .

•Entertainment, luxury and other service taxes in hospitality amount to more than 22%, compared with the proposed 18% under the GST regime. So GST should be positive for the sector

When the VAT, service tax, and luxury tax are combined the total impact goes up and lies between 20 to 27 per cent.

With the GST implementation, the multiple taxes would be replaced by one single tax, the rate of which is likely to be between 17 to 19 per cent. The hotel and tourism industry would benefit in the form of a lower tax rate which should help in attracting more tourists to India. However, the luxury tax is not applicable on all transactions and the GST rate may be at par or higher in such cases. The hotel industry would definitely prefer a lower GST rate between 10 to 15 percent.

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Cr

ea

tin

g A

wa

re

ne

ss

•Awareness programs to reach stakeholders

•Stakeholders to be kept informed about plan & progress implementation.

Ch

an

ge

As

sis

tan

ce

•Its Critical for business process owners to manage attributed change in GST implementation in daily activities.

Inte

gr

ate

Pr

oc

es

se

s

•Multiple systems and modules at various stages to be ready for GST

•Systems/ applications to be identified, developed and tested thoroughly.

Key Considerations for Entity Im

ple

me

nta

tio

n o

f G

ST

Tim

ely

Re

ad

ine

ss

•Organization to ensure timely readiness for GST Implementation

•Any delays attracts potential reputational risks.

•Critical to remove roadblocks

Un

itin

g S

tak

eh

old

er

s

•Different Stakeholders different interest.

•Common grounds to be identified together under common clause.

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Increase in the rate for

service sector

Non availability of

CST Credit(Credit

of IGST will be Available)

Input service Credit to

wholesalers and retailers

Pruning of Exemption

List

Availability of credit on

opening stock

Credit on VAT paid goods available to

Service provider

Saving on Non payment of

Octroi, Entry Tax, Luxury

Tax, etc.

Financial Impact

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Wid

er

Imp

lica

tio

n o

f G

ST

Suppliers

Customers

Fin &

Admin

Human

Capital

Training

Legal

Sales

Strategies

Information

Systems

Compliance

• Sourcing from Appropriate Vendors

• Maximizing tax credit from best practices

• Appropriate Pricing

• Structuring of financing

• Identification of Correct GST Liability

• Cash flow Impact

• GST Compliances

• Other Administrative Tasks

• Training incl. workshops on roles and responsibilities

• Facilitating business

readiness

• GST impacts on

contracts

• GST registrations

• Tax credit transitions

• Return reporting

• Other statutory compliances

• Impact on current inventory

• Pricing Strategies • Effect on Demand

• System Design changes for GST compliance

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Compliances

Reporting of

accumulated credits

New formats of invoices, waybills,

returns/challans etc.

Rate change

to be implement

ed

Classification of goods and services

Manner of computatio

n and payment

Periodical Returns

Redesign IT

Systems

Statutory forms

– likely to be discontinued

Migration of

registrations

- PAN based

GST Compliance Framework

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With diverse clientele, our diverse experience across multiple segments of industry Industry Focus

STAN Difference

Project Management Capabilities

Technical Skills

Strong working relationship and access with government Departments

Have blend of Highly Qualified team of professionals

Holistic suite of offering to ensure smooth GST transition

Success fully concluded GST impact assessment for clients

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How STAN can Help in GST?

Feasibility Studies

• GST Impact Analysis

on Business

• Advisor on additional issued by authorities

IT & Systems

• Advising on

Accounting, billing and invoicing systems

• Assisting IT manual around solutions wherever required

Migration & Compliance

• Migration of VAT to

GST

• Identifying Additional Compliance responsibilities

• Handling Legal Compliances i.e returns filing for you

• Assisting with Registration across country

Advisory

• Advising Implications

on various Provisions

• Delivering comprehensive approach towards valuation of bundles consisting of services & Goods

• Providing VAT implication guidance for contractual terms in future Agreements

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/Pre

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Ten

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Our Major Credentials


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Setting GST Concern

http://www.industowers.com/

http://www.ril.com/

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Let’s talk

For a deeper discussion of how this issue might affect your business, please contact: Tax & Regulatory Services – Indirect Taxes Madan Chauhan Kapil Vohra Sambhav Jain 0172-5098288, Ext. 107 0172-5098288, Ext. 117 0172-5098288, Ext. 102 [email protected] [email protected] [email protected]


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Setting GST Concern

mailto:[email protected]