A CASE STUDY ON GST IN SERVICE SECTOR PARTICULARY WITH REFERENCE TO HOTEL INDUSTRY

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1 33 Journal of Management and Science ISSN: e-issn: Special Issue. No.1 Sep 17 A CASE STUDY ON GST IN SERVICE SECTOR PARTICULARY WITH REFERENCE TO HOTEL INDUSTRY Dr. Kala Ganesan Associate professor of Commerce Department of commerce Government Arts College for women (AU) Pudukkottai. Ms. M. Deepa Lecturer in Commerce Department of commerce Government Arts College for women (AU) Pudukkottai. ABSTRACT: Goods and Services tax is a newest taxation system in India. It is a indirect taxation has a huge impact on business both big and small and change the way of economy functions. This tax is combined by the central and state government. The parliament legislation of every state will have the power to make law under the article of 246 Act with respect to goods and services to improved by union government or by the state government. This tax was introduced by the constitution 101 st 1 st amendment act 2017, following the governed by a GST council and its chairman is the finance Minister of India. Under GST, goods and services taxed at 0%, 5%, 12%, 18%, and 28%. In July The government introduced and implemented four types of GST bills, including, central GST, Integrated GST, GST bill of union territories and GST bill. In this paper section, one deals with introduction, objectives, methodology, and limitation of the study. Section 2 deals with introduction of hotel industry and the GST on it applied. Section 3 deals with a case study on chidambara vilas a luxury heritage resort from sangam hotel. Section 4 includes GST impact on hotel industry and final section 5 concludes the study area and suggestions. A case study conducted with Chidambara Vilas a luxury Heritage resort from sangam hotel to find the impact of GST on Heteitage resort. From the findings it is found out that the heritage resort enjoy 12% to 18% GST which is less then the before tax rates which includes VAT, Service Tax and service charges. Introduction: GST was introduced in Feburary 2006 and announced the date of its implementation in 2010.January 2007 Dr.Sharme released first GST. February 2007 Finance Minister announced introduction of GST from 1 April 2010 in budget. The government came out with a first discussion paper on GST in November 2009.Introducing in 115 th constitution Amendment (GST) bill in the year The proposed rate of GST on Goods is 20% out of which 12% central and 8% state. For Essential goods 12% of which 6% state and 6% central.

2 34 Journal of Management and Science ISSN: e-issn: Special Issue. No.1 Sep 17 For services 16%, that is 8% state and 8% central. However, Vat for state is 12.15% and for Central 26.5%. There is.5 % differ. It is not a perfect tax levied under central tax. In state levied 22% overall but VAT % only. Therefore, this is not a perfection of tax levied in GST. More than 140 countries already introduced GST. France was the first country to introduce GST in Typically, it is a single rate system but two or three rate system is also prevalent by Canada and Brazil along our dual vat. Standard GST rate in most countries ranges between 15 to 20 %. Why does India need GST? GST is being introduced for two reasons the current Indirect tax structure is full of uncertainties due to multiple rates. Due to multiple forms, GST tax complexity in the prevailing tax regimes. The tax structure in India comprise of two taxes direct taxes and Indirect taxes. Direct tax includes income tax, corporate tax, and wealth tax. Indirect tax includes Excise duty, Custom duty, Service tax, vat and octori tax. Progressive tax increases the rate of tax for increasing value or volume. Regressive tax decreases the tax rate for increase the value or volume. Proportion tax fixed rate of tax for every level of income or production. GST is newest and indirect taxation in India that has a huge impact on business both big and small and change the way of economy functions. It is important to understand the current indirect taxation system. Direct taxes such as Income tax are borne by the person liable to pay the tax, this means that the tax burden cannot be shifted to anyone else. The liability of indirect taxed can be shifted to another person, the person liable to pay the tax can collect the tax from someone else and then pay it to the government, shifting the tax burden. The GST tax falls under this category. The current indirect tax structure comprises of central and state taxes. Central tax levied by the central government including CST and Excise duty. State taxes levied by the various state governments (VAT, Service tax, octroi) it replacement to complex sales tax. It overcomes a cascading effect of tax. It applied on Value added portion in sales price. It is not uniform in nature; differ to differ state. Differ rates of taxation for different good and services.

3 35 Journal of Management and Science ISSN: e-issn: Special Issue. No.1 Sep 17 Objectives of the study The present study on GST is focus on service sector particularly hotel industry. To study the GST levied on hotel industry particular on Chidambaravilas a luxury heritage resort from sangam hotel. To analyse and find out the GST impact on service sector particulary hotel industry. Limitation of the study: Due to time constraints, the study period is limited to only 15 days. Hence not able to collect much more information regarding hotel industry. The area of study is limited to pudukkotai district. There are five star, three star, one star and two star, Heritage resort, luxury resort, cottage resort, residency, etc. The study is limited to the luxury heritage resort. Methodology used: A case study was conducted in Chidambaravilas luxury heritage resort Thirumayam taluk. Pudukkottai district. Hotel industry: Section 2 deals with introduction of hotel industry. A commercial establishment providing lodging meals and other guest services in general, hospitality minimum of six letting bedrooms, at least three of must have attached private bathroom facilities. Although hotels are classified into star categories (1 star to 5 stars), there is no method of assigning these ratings and compliance with customary requirements is voluntary. A US hotel with certain rating may look differ from European or Asian with same rating and would provide a different level of amenities, rate of facilities, and quality of service. Star hotel provides good and spacious accommodation high-class decoration furnishings and color TV better-equipped bedrooms each with a telephone and one or more bars or lounges with attached private bathrooms. Hotel industry plays a vital role in the development of services sector. Hospitality plays a major role in this sector. Tourism and Hotel paves the way for development of exchange currency in India. Star hotels in various places connected with tourism places. People from

4 36 Journal of Management and Science ISSN: e-issn: Special Issue. No.1 Sep 17 various countries traveling throughout the world want to stay and enjoy the whole day. The Luxious tax and combined service tax is 6 % fixed by different states. After GST, highest rate is 28%, which is less expensive; and this GST is for star hotels only. Industry sources said that the average combined tax rate is in the range of 18% to22%.under the new GST if we stay in dinning at five star is more expensive. However budget hotels have been spared with room rates of less than Rs.1000/- is nil, Between (Rs.1000 to Rs.2500) is 12%,(Rs2500 to Rs5000) is 18% and abovers.5000 is 28%. Type of Location Hotels Five Star Restricted to the 4 th largest metropolitan area and other major cities. Target Customers Foreign business, leisure traveller, seminar business, executive meeting government officers and private officers. Three Star One star and two star Heritage, Location in major cities as well as tourist area Major cities, small cities Heritage hotels comprise old palaces, castles, forts, residency converted into hotels. In Mysore and Jaipur, Tamilnadu Middle level business, Moving population Domestic tourists. Primarily foreign lecture travelers. Segmentation of Hospitality: It is divided into two travel and tourism industry and Hotel industry. Hotel industry classified into Hotels,Restraunts, contract caterers. There are many hotels named as Inn,Cottage,Hertitage,homes,Hut,,Residency,Resort,Extendedstay,Suite,Airport hotels, Commercial, Corporate hotels and unclassified rated hotels. And other division is restaurant consists of fast food, casual dinning, fine dinning and coffee bars. The services provided by the restaurant are in different languages, room facilities, food providing, and snack bar services. The table shows the division of hotels according to levels of people living in that area.

5 37 Journal of Management and Science ISSN: e-issn: Special Issue. No.1 Sep 17 GST on hotel industry: The head office located at Mohali is the leading assurance & consulting organization well positioned to assist GST in India. It is a team of 400 people, 75 Professionals with industry background and experience. GST introduced in 1991 by replacing federal sales tax. Levy of GST ranging from 13% to 15% and other at 5%. Tax to GDP ratio first increased and then decreased when rates we raised and then steady up down. GST introduced in 1985 is the peak rate of 15%. In Constitutional bill in 2014 rate of taxes concessional 12% standard rate 17-18%, Luxury rate 40%.GST on global outlook 31% to 36%. The current position of hotels and tourism hits various taxes across the channel by VAT to output service tax and luxury tax. The vat varies from state to state and lies between 12 to 14.5%.Similarly luxury taxes depends on the proportion of room tariff and usually scales between 0 to 12 %. Service tax fluctuates depends upon the service usually 8.7 of the total room tariff food rate differ from place to place. For food and beverage, 40 % of the bill attracts the service and it comes to 5.8 percent when considered on total bill. For booking in hotels for occasions like marriages, ceremonies and meetings an rebate of 30% is given and the effective service tax works out to 10.5% on the total charges. The structure of 5%, 12%, 18% and 28% of which the service sector will be taxed at 18 %. The 5 % slab on food proposed which is a positive of subsumed taxed for hotels and restaurants. However, the 18 % levy on services or room revenue compared to neighboring countries, which charge a tourism tax between 4 to 7 % rules out fair competition. The federation of Association in Indian tourism and hospitality has pointed out amendments to the draft good and services tax law that supports exception for tourism and hospitality business. It has highlighted that most nations recognize tourism as a critical economic driver and follow a Tourism Rate which is lower than 50% of the Standard Rate on other sectors. GST Impact on hotels and restaurant Impact on Hotels: Section 4 deals with GST influence hotels and restaurant. Those restaurants whose annual turnover less than Rs.50 lakh, GST is 5 %. Dinner in Non-A/c small restaurants is 12 % Dinner in A/C restaurants is 18 %( eating with liquor license). Dinner in 3 star or 5 star is 28 %. All the above said hotels, inns, guesthouses, Clubs, Campsites or other commercial

6 38 Journal of Management and Science ISSN: e-issn: Special Issue. No.1 Sep 17 places, grant homes, vilas input tax credit available. At present the hotels are impacted by multiple taxes. There are three taxes levied on hotel, which are VAT, Luxury tax by state and service tax by centre. These taxes goes upto 28 % after implementation, multiple taxes would replaced by one single tax 17 to 19 %. Negative impact: The levy of service tax on room tariffs restaurants, the impact of which will be passed on to the end customer is likely to have a detrimental impact on demand as it drives up the effective consumer cost. However, roll out of GST could neutralize this impact. The incremental tax on air travel will also push up the travel bill the quantum of the same would be low. Other financial impact: 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 expertise fees and franchise agreements in the industry, is likely to become a part 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 affect 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. The table shows the rate under current taxes and GST. S No Particulars GST Rate Service Tax Rate Vat Rate 1 Supply of Food/drinks in restaurant not having facility of air-conditioning or central heating at any time during the year and not having license to serve liquor 12% With Exempted

7 39 Journal of Management and Science ISSN: e-issn: Special Issue. No.1 Sep Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having room tariff Rs.1000 and above but less than Rs.2500 per room per day 3 Supply of Food/drinks in restaurant having license to serve liquor 4. Supply of Food/drinks in restaurant having facility of airconditioning or central heating at any time during the year 12% With 18% With 18% With Abatement 40%, CC allowed on input services only, exemption Below Rs 1000 & Equivalent If AC & CAHC: 40 % Of value & Otherwise exempte d 40% of value Taxable 5.5% on pizza, burgers, sandwich, hotdogs, on cooked food except in restaurants and hotel categorized as 3star and above and heritage hotels as grand /classic, food Served on Rest. 14.5% on beverages, 3 stars and above, under the brand name by branded chain of cooked food. 5. Supply of Food/drinks in outdoor catering 18% With 60% of Value taxable 6. Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes where room tariff of Rs 2500/ and above but less than Rs 5000/- per room per day 18% With ITC Full 60% of Value Taxable CC Allowed on input Services only 7. Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises (including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises 8 Supply of Food/drinks in airconditioned restaurant in 5-star or above rated Hotel 18% With 28% With Abatement 30% CC Allowed On Input Services only 60% of value CC Allowed in Input Services only 9. Accommodation in hotels 28% With 60% of value

8 40 Journal of Management and Science ISSN: e-issn: Special Issue. No.1 Sep 17 including 5 star and above rated hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes, where room rent is Rs 5000/- and above per night per room CC Allowed in Input services only. The hospitality industry, like every other sector in the Indian economy, pays multiple taxes (VAT, luxury tax, and service tax) in the existing indirect tax regime. A hotel where the room tariff exceeds Rs 1,000 is liable for service tax at 15 percent. An abatement of 40% allowed on the tariff value bringing the effective rate of service tax down to 9%. The Value Added Tax 5.5% to 14.5% and luxury tax will still apply. For restaurants there is 60% abatement which means that the service tax is charged at an effective rate of 6% on the F&B bills, apart from VAT (5.5 percent to 14.5%).Bills for bundled services like social functions (seminars, marriage etc.), taxed with an abatement of 30%. The cascading effect of the existing indirect tax regime where the end consumer pays a tax on tax increases the end cost. Hoteliers and hospitality businesses do not get any input tax credit on the taxes they pay currently, as central taxes cannot be set off against state taxes (VAT) and vice-versa and also due to availability of abatement no input credit is available. Section 5 deals with Suggestions and recommendations: There is a transparent tax system, Uniform tax system across India, Reduction tax evasion and export will be more competitive. There are hurdles in implementation of central and state sharing. High sophisticated infrastructure required by the government. Issue of tax E- commerce is to be appropriately address and intragrated. There is political imbalance. At present so for many goods there is reduction of tax, which is already levied. Therefore, we cannot judge how the taxes for the forthcoming years will be. Our policy is one market one tax that is why GST born. It is healthy to service sector like tourism and hotel, industry particularly heritage luxury resort enjoy the GST when compared with the previous tax. Due to political climate changes, this tax system is not welcome by many people in India The present scenario for hotel industry limit exceed to 20 lakhs for

9 41 Journal of Management and Science ISSN: e-issn: Special Issue. No.1 Sep 17 registration is applicable. Type one hotel and restaurant are exempted form GST. Type 2 to 5 hotels enjoyed the GST. References: 1) GST E- Book From 2) Jan 11, By Hirak Parmar. 3) 4) 5) hotel sangam.com 6) Top ten hotels in pudukkottai.com 7) in india.com *****