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”
2
Allrightsreserved/Preliminary&Tentative
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
3Setting GST Concern

Our Presence in India
Branches
Chandigarh
Bengaluru
Delhi
Ludhiana
Jammu
S.No Virtual Offices
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2 Cochin
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Integrated Risk Insurance Brokers Ltd. (IRDA approved)
Stan Professionals Pvt Ltd – Leading Consulting Company in India
About our Group

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.
6
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
7
Setting GST Concern

GST
HIGHLIGHTS

• 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 -%

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
10
Setting GST Concern

Pre GST Tax Structure
IndirectTax
Central Tax
Excise
Service Tax
Custom
State Tax
VAT
Entry Tax, luxury tax,
Lottery Tax, etc.

Taxes Subsumed Under GST

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

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

GST rates as per New Model GST Law
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

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

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
18
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

Decoding Impact of GST on Hotel Industry
from Model GST Law Perspective
• GST a good hope for
Hotel Industry
Impact
20Hotel Industry Impact

Current Scenario
21
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

Proposed Scenario
22
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.

•
23
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
24
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.

Benefits
25Hotel 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.

CreatingAwareness
•Awareness
programs to
reach
stakeholders
•Stakeholders
to be kept
informed
about plan &
progress
implementatio
n.
ChangeAssistance
•Its Critical for
business
process
owners to
manage
attributed
change in GST
implementatio
n in daily
activities.
IntegrateProcesses
•Multiple
systems and
modules at
various stages
to be ready for
GST
•Systems/
applications to
be identified,
developed and
tested
thoroughly.
Key Considerations for EntityImplementationofGST
TimelyReadiness
•Organization
to ensure
timely
readiness for
GST
Implementatio
n
•Any delays
attracts
potential
reputational
risks.
•Critical to
remove
roadblocks
UnitingStakeholders
•Different
Stakeholders
different
interest.
•Common
grounds to be
identified
together
under
common
clause.

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

WiderImplicationofGST
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
• Trainingincl. workshopson
rolesand responsibilities
• Facilitating business
readiness
• GST impacts on
contracts
• GSTregistrations
• Taxcredittransitions
• Returnreporting
• Other statutory
compliances
• Impact on current
inventory
• Pricing Strategies
• Effect on Demand
• System Design changes
for GST compliance

Compliances
Reporting
of
accumulate
d credits
New
formats of
invoices,
waybills,
returns/cha
llans etc.
Rate
change
to be
implement
ed
Classificati
on 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

 With diverse clientele, our diverse
experience across multiple
segments of industryIndustry 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

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

Our Major Credentials
33
Setting GST Concern

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
madan.chauhan@staindia.org Kapil.Vohra@staindia.org Sambhav.jain@stan.in
34
Setting GST Concern

GST on Hotel industry

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