India: GST in India has affected the tourism industry

Do you know which is one of the fastest growing industry sectors in India? It’s the tourism industry. The hotels combined with travel industry went over $137 billion by 2016 end. However, the beginning of GST has impacted this industry in India in a big way. The Goods and Services Tax (GST) made its way in India on July 1, 2017, and since then all the experts and economists have been discussing the probable impacts of this new tax on the country’s economy and also on various businesses. But a deep-dive on the existing trends in the Indian tourism sector prove that there has been a positive impact and an upward turn after GST was implemented.

So let’s see how GST has helped this industry to further thrive. One reason why GST has shown a positive impact is that it has reduced the costs that customers have to bear and therefore, it makes their holidays more affordable. The main aim of GST has been to consolidate various taxes into one single tax amount, which in turn helps in decreasing the transaction costs related to tourism. The owners of various organisations and businesses earlier thought that GST would make things tougher for them. However, there surely are some challenges that come along the many positive consequences of implementing GST in the tourism industry.

The major benefit that GST brings is that the hospitality industry gets the benefit of homogeneous and uniform tax rates. Utilizing the input tax credit (ITC) has enhanced in a big way, thus simplifying and improving things. Many additional services such as complimentary food were also earlier being taxed under VAT. As per the new GST structure, these kinds of services would be taxed as bundled services. The hotels also gain because the end cost that the customers pay is going to come down. This works as a huge benefit for the hotels because they can attract more guests or tourists and hence grow their business. This in turn also increases the total revenue collection done by the government.

To do a reality check, major hotels in India follow a policy of dynamic pricing. Wondering what that means? The hotels basically fix the rates or tariffs manually depending on the total number of guests they are expecting in a particular season. Hence, we see fluctuating tariffs from in different seasons. The GST rates vary as per the tariff levels of various hotels, and thus, these hotels would need to ensure that the billing software they use, is updating the tax rates depending on the overall room tariff over the distribution channels including the travel agencies and the online aggregators. This helps the consumers in the long run and also maintains the transparency around hotel tariffs.