Impact of GST on Tourism Industry: Challenges and Opportunities

India, known for its vibrant cultural heritage and exotic tourist destinations, is among the fastest-growing tourism markets globally. According to a report by the World Travel and Tourism Council, India's tourism industry is expected to grow by 7.5% per annum between 2019 and 2029. However, since the implementation of the Goods and Services Tax (GST) in July 2017, the tourism industry has faced several challenges.

Initially, there was confusion regarding the applicability of GST on services provided by tour operators, hotels, and other tourism-related businesses. Slow adoption of the GST regime by small and medium enterprises added to the confusion. However, with time, the industry has adapted to the new tax regime, and the government has also introduced several measures to boost the tourism sector.

Impact of GST on the Tourism Industry

The introduction of GST has led to several changes in the tourism industry, some of which are listed below:

1. Increase in Tax Rates

Under the GST regime, the tax rate for hotel rooms with a tariff of INR 7,500 and above is 28%, while for those with a tariff of less than INR 7,500, the tax rate is 18%. Earlier, the tax rate for hotel rooms was around 15%, which means there has been an increase in tax rates post-GST.

2. Impact on Tour Operators

Tour operators face a complex tax regime under GST, which has impacted their business. Earlier, they were charged a single tax on the gross value of their services, which included transportation, accommodation, and food. However, under GST, they have to pay tax on each service separately, which has increased the compliance burden.

3. Increase in Domestic Tourism

One of the positive impacts of GST on the tourism industry is an increase in domestic tourism. With the introduction of GST, the tax on luxury items has gone up, which has made foreign travel more expensive. Consequently, people are opting for domestic travel, which is less expensive and more accessible.

4. Boost to the Hospitality Sector

Despite the increase in tax rates, the hospitality sector has received a boost under GST. Earlier, there was a cascading effect of taxes, with multiple taxes being levied on a single transaction. With the introduction of GST, the cascading effect has been eliminated, which has reduced the tax burden on hotels and restaurants.

5. Simplification of Taxation

One of the main objectives of GST is to simplify taxation. Under the earlier tax regime, there were multiple taxes like service tax, luxury tax, and VAT, which made compliance complicated. With the introduction of GST, these taxes have been subsumed, making compliance easier.

Measures taken by the Government to Boost the Tourism Sector

Recognizing the importance of tourism as a driver of economic growth and employment, the Indian government has taken several measures to boost the tourism sector. Some of these measures are listed below:

1. E-Visa Scheme

The government has introduced the e-visa scheme, which allows foreign tourists to apply for a visa online and receive it within 72 hours. This has made it easier for tourists to visit India and has led to an increase in tourist arrivals.

2. Swadesh Darshan Scheme

The Swadesh Darshan scheme aims to develop theme-based tourist circuits in the country. Under this scheme, the government has identified 15 thematic circuits, such as spiritual, heritage, and coastal, for development. This initiative will help promote tourism and boost the local economy.

3. Incredible India 2.0 Campaign

The Incredible India campaign is a marketing initiative by the government to promote India as a tourist destination. Under the Incredible India 2.0 campaign, the government plans to promote lesser-known destinations and create a buzz around them. This will help diversify tourism and attract more tourists to offbeat destinations.

Conclusion

The GST regime has had a mixed impact on the tourism industry. While there have been challenges, such as an increase in tax rates and complexity in compliance for tour operators, there have also been positive impacts, such as a boost to the hospitality sector and an increase in domestic tourism. The government has also taken several measures to boost the tourism sector, such as the e-visa scheme, Swadesh Darshan scheme, and Incredible India 2.0 campaign. These initiatives will go a long way in promoting tourism and boosting the local economy.