In addition, tourism’s value-added to an economy can also be increased by attracting a more diverse mix of tourist arrivals, using e-commerce to broaden the reach of local tourism businesses, and broadening the offer to include cultural, wildlife, and heritage tourism.

Impact of GST on Tourism Sector

Tourism Industry in India

The travel and tourism sector holds great strategic importance in the Indian economy providing several socio-economic benefits. Apart from providing employment, income and foreign exchange for the country, the trade in the tourism sector has an economically positive impact on other associated industries such as food manufacturing, services, construction, agriculture, handicrafts etc. In addition, investments in infrastructural facilities such as transportation, accommodation and other tourism related services lead to an overall development of infrastructure in the economy. Despite that the Tourism Sector, including Inbound Tourism pay a plethora of taxes and do not get any significant benefits as compared to other Export sectors. There are multiple taxes charged on the same Service/ Product offering by the Central as well as State Governments. It is an understanding that the Taxes levied on Inbound Tourism is amongst the highest in the country, and this is one of the major reasons for India losing Foreign Tourists to competing South East Asian Countries. Tourism sector in some of the key competing destinations in South Asian countries attract much lesser taxes thereby making the products more competitive. Key Issues facing the Tourism Sector on various fronts are as under:

High Multitude and Incidence of Taxes on account of taxation at multiple levels and absence of seamless input credit flowLot of business in this sector gets generated through online mediums. Significant amount of clarity is required in the existing laws to deal with e-commerce players and aggregators.Lack of Proper Infrastructure in terms of access, connectivity and services and many unorganised players in the industry.Non-availability of skilled & Semi skilled man power required for the industry to attract foreign tourist as well as promote local tourism specially Eco Tourism & Rural Tourism which lacks professional approach towards service and customer satisfactionLack of Marketing, Branding & Promotion efforts for the rural, cultural and Eco friendly remote locations and their conservations

Current Business Models followed in tourism sector

Model 1:- Total Tour Package Here total booking is done by the tour operator and the total fees charged shall include his margin. So the Tour Operator become service provider and in turn he receives services from various other counterparts like Airline Companies, Hotel, Local Taxi Operators, Restaurants, Embassy issuing visas etc. Model 2:- Front end commission for tour related services Here all the bookings are done directly by the person travelling. The tour operator only facilitates the transaction and helps traveller to identify various suppliers as per their requirements and arrange for its booking. Payment flow goes straight away from actual traveller to end service provider and tour operator only charges for its service portion from traveller. It is getting popularity since it can give customised package as per the traveller’s requirement with the reduced cost. Model 3:- Back end Commission Here Tour operator does not charge any fees from the customer. He only facilitates the transaction and help traveller to identify various suppliers as per their requirements and arrange for its bookings. In turn the ultimate supplier pays commission for promotion and generating sales for them. It is mainly used in Hotel Booking & Flight Booking. Model 4:- Block Purchase & Sell Here there are parties who take bulk booking from the existing end suppliers like flight operators, hotels, for time being at very low cost and then sell to the tour operator or corporate clients or others. They are working as intermediary only dealing in specific segment of the tourism industry like Oyo Room. Model 5:- Travel Aggregator Here company provides platform to various end suppliers to showcase their listing and in turn it charges commission from them, along with nominal fees from the customer on their booking so it is two-side revenue model for the aggregator in certain cases. (Eg: Go ibibo, Trivago etc.)

Major issues in Present Tax system

Taxation of service offerings at multiple levels in the Tour Package. This leads to overall taxation to this sector In the range of 20-27% considering a loss of Input Tax credit of various taxes, like excise duties, import duties, luxury tax, entertainment tax etc.Differential taxes across states which vary frequently in terms of Luxury Taxes and Local Vat.Very confusing abatement patterns to derive the taxable component of the services and that too changing very oftenHigh State Entry/Road Tax on commercial vehicles in certain states, which is a burden on the Foreign Tourists.Many Small Player in the industry so Tax chain break at many level resulting into higher tax credit loss to playersNo cenvat credit available for the infrastructure development which is huge cost to the Industry and resulting into higher costing

Taxability under GST

According to the CGST Law which neither contains the exemptions nor the rates of taxation, it appears that most of the services in relation to Tourism would be subject to levy of GST as the same is to be treated as ‘supply’. Since taxable event is supply, it is necessary to understand certain terms like Location of Supplier of Service, Location of Recipient of Service and Place of Supply. Tourism industry supplies bundle of services and hence definition of Composite Supply and Mixed supply also needs to be understood. Location of Supplier of Services As per Section 2(71) of CGST Law,‘location of the supplier of services’ means,

(a) where a supply is made from a place of business for which the registration has been obtained, the location of such place of business;(b) where a supply is made from a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment;(c) where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the provisions of the supply; and(d) in absence of such places, the location of the usual place of residence of the supplier;

Location of Recipient of Services As per Section 2(70) of CGST Law. ‘location of the recipient of services’ means,—

(a) where a supply is received at a place of business for which the registration has been obtained, the location of such place of business;(b) where a supply is received at a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment;(c) where a supply is received at more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the receipt of the supply; and(d) in absence of such places, the location of the usual place of residence of the recipient;

Place of Supply As per Section 2(86) of CGST Law, ‘place of supply’ means,— Place of supply as referred to in Chapter V of the Integrated Goods and Services Tax Act; Mixed Supply As per Section 2(74) of CGST Law, ‘mixed supply’ means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply. Illustration: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately. Composite Supply As per Section 2(30) of CGST Law, ‘composite supply; means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply; Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply. Also the key factors in GST is ease of availing input tax credit and therefore it is necessary to understand definition of Input Tax, input, Input Service and Capital Goods to understand allowability of various taxes paid on inward supplies.

There are likely to be concerns in valuation of restaurant services in view of the industry practice of discounts/offers/policies in the form of incentives. The proposed valuation rules are different from the existing ones and as such this sector need to frame an appropriate policy for such discounts in advance making it a part of documentation. Any discount which is not known at the time of entering transaction with customer shall not get the benefit of reduction in corresponding taxes under the GST regime.Service providers having centralized registration will have to get registered in each state from where they provide services. Although Government has been claiming “One Nation One Tax”, practically it is not going to be so. Anyone providing services from multiple states is already enjoying “One Nation One Tax”. However now that the states also have been constitutionally granted right to collect GST on services, each state would start behaving like a separate country. And if that is so a service provider catering to customers from different states, will have to opt for registration in each such State or Union Territory.

Composition scheme in Tourism Sector

Composition scheme can be availed in tourism sector by the supplier who is engaged in providing any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption). Person whose aggregate turnover in the preceding financial year did not having 50 lakh rupees and not having any Inter State Supply and is neither a casual taxable person nor a non-resident taxable person, can avail the benefit under composition scheme. Rate of Tax in case of Composition scheme shall not exceed 2.5% of CGST as well as 2.5% of SGST totalling to 5%. Composition scheme proposed for restaurant, catering business which will exclude many small players out of the tax credit chain and may result into additional cascading effect in case of B2B transactions. Assessee opting for composition scheme shall not be entitled to take any credit. However, they need to pay Tax under RCM if they have any inward supply from specified person and that shall add on to their cost. Person foregoing negligible amount of input tax credit, can benefit by opting for composition scheme since their total output liability shall reduce to 5% (2.5% CGST+ 2.5% SGST) as against current liability of 9% – 10%

Also in case of Passenger travelling, the state with the maximum outbound journey shall earn the highest revenue so the station or the port having highest outbound flights, train journey or local cab journey shall earn substantial revenue. In Pre-GST regime, they were not having any share on such income since only service tax was applicable on these transactions and it was charged by centre and entire revenue was collected by the centre only. Now in GST regime since states will also get 50% share of total tax charged along with the centre, it will substantially increase the revenue of the states. So, states like Maharashtra, Delhi, Rajasthan, Karnataka shall be the most beneficiary among all the states. Recommended Articles –

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