GST Council Meet: Tax cuts
The 37th meeting of the GST Council was held at Panaji, Goa, on September 20, 2019. The main task at hand was boosting economic growth and it was sought to be achieved by tax cuts. The markets responded positively to the much-needed stimulus package, with indices showing the biggest single-day jump over the past ten years. The Sensex and Nifty gained 1921.15 points and 569.40 points,with investors gaining over ₹7 trillion by way of companies listed on the Bombay Stock Exchange climbing to a market capitalisation of ₹145 trillion as trading closed on Friday.
Hospitality industry GST: before the hotel tax cuts
Back when the hospitality industry GST rates were introduced, the government received a lot of flak, as high rates were sure to affect the industry adversely. Before the Goods and Service Tax (GST), there were multiple taxes, viz. VAT, service tax and entertainment tax. After the introduction of the GST, all the different taxes were brought under its ambit, and it made it simpler, but the taxes were still high. There were two main ways the GST affected the hospitality industry: by taxing room tariffs and by taxing meal services. The breakdown applicable taxes before the tax cuts are as follows:
- For hotel rooms with tariffs up to ₹1,000, there was no tax on room rent, and a 5% tax on meal services, without input tax credit.
- For hotel rooms with tariffs between ₹1,000 and ₹2,499, there was a 12% GST on the room rent and a 5% tax on meal services, without input tax credit.
- For hotel rooms with tariffs between ₹2,500 and ₹7,499, there was 18% GST on the room rent and a 5% tax on meal services, without input tax credit.
- For hotel rooms with tariffs above ₹7,499, there was a 28% GST on the room rent and an 18% tax on meal services, with input tax credit.
The base corporate tax hotel companies were charged stood at 30%.
On September 16, tourism ministers from states across India met to discuss issues plaguing the hospitality and travel industries, and high GST rates was one of the topics discussed.
Newly introduced hotel tax cuts: stimulus for the hospitality industry
The reforms announced on Friday will be applicable from October 1. GST rates have been slashed. The new rates after the hotel tax cuts stand as follows:
- For hotel rooms with tariffs up to ₹1,000, there will be no GST on the room rent – this is the same as before.
- For hotel rooms with tariffs between ₹1,000 and ₹7,500, there will be 12% GST on the room rent. So, effectively, the GST for hotel rooms with tariffs between ₹2,500 and ₹7,499 has been brought down from 18% to 12%.
- For hotel rooms with tariffs above ₹7,499, there will be 18% GST on the room rent. This is down from the previous 28%.
All in all, after the hospitality industry GST cuts, GST rates for hotel rooms with tariffs upwards of ₹2,500 have come down.
The GST rates for outdoor catering in venues with tariffs of ₹7,499 or more, too, have been slashed, being brought down to 5% from 18% (with no input tax credit).
Additionally, the base corporate tax rate cut from 30% to 22%, too, will be beneficial for many companies operating in the hospitality industry.
What effects will lowering the hospitality industry GST rates have?
The tax cuts were well-met and applauded by various members of the hospitality industry. We’re nearing the winter season – a season that also sees a lot of tourist activity, and what better way to boost tourism than to make it cheaper for people?
Not only will lower tariffs (a result of lower tax rates) entice tourists, but the increased footfall caused by them will also create jobs, something the economy needs as well.
Also, the money that companies operating in the hospitality industry will save by way of the corporate tax cut will be available for them to invest in their business.
Immediate effects of lowering the hospitality industry GST rates
Hotel stocks shot up, with Taj GVK Hotels and Resorts surging 5%, Hotel Leela Venture going up 3.5%, Indian Hotels Company rising 1.7% and Lemon Tree Hotels rising 0.8%.
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