Issues faced by travel sector post-GST
1. India's biggest tax reform, i.e., GST has met with an equal measure of praise and criticism. While the implementation of GST promises to add significant edge to the economy, the travel industry is one such sector in the economy that is constantly deliberating upon the new tax regime.
The Tourism Industry is a cosmic industry made up of businesses and organizations that provides goods and services to meet the distinctive needs of the tourists. The Indian Tourism and hospitality sector ranks seventh in the world in terms of its total contribution to the country's GDP. Being one of the top sources of foreign exchange, tourism is among the highest tax generating sectors in the country. Various amendments/notifications have been issued by the government to resolve the issues faced by the industry under GST. However, there are still certain areas on which Government needs to pay more attention.
2. Issues of the hospitality sector
2.1 Practical difficulty in the case of Inbound Tour package, where the tour operator is working on principal basis - Inbound Tour is a tour organized by the tour operator, within India for the tourists coming from abroad. If a tour operator is working on principal basis, i.e., on its own account then the place of supply of service shall be the location of performance of service under section 13(3)(b).
Where the services are supplied in more than one State or UT, the place of supply of such services shall be taken as being in each of the respective States or UT and the value of such supplies specific to each State or UT shall be in proportion to the value for services separately collected or determined in terms of the contract or agreement entered into in this regard.
It is not only time-consuming process but also practically impossible for the service provider to bifurcate the detail of packages so as to deposit the tax under the appropriate head in accordance with the provisions of place of supply.
For example, a Tour Operator, XYZ has provided tour package for 10 days to Mr. A, a resident of the USA at US $. 50,000. The itinerary of the package is a follows:-
Day 1: Flight from Delhi to Kerala
Day 2 & 3: Sightseeing in Kerala
Day 4: Flight from Kerala to Bangalore
Day 5: Sightseeing in Bangalore
Day 6: Flight from Bangalore to Goa
Days 7-9: Sightseeing & Activities in Goa
Day 10: Flight from Goa to Delhi
In the aforesaid package, A has covered 4 States (Delhi, Kerala, Karnataka & Goa) and hence, XYZ is required to pay tax on the basis of the place of supply provision, i.e., where the services are actually performed as per the provision of section 13(3)(b) of the IGST Act.
Hence, the abovementioned bifurcation is difficult in case of each invoice. Currently, to avoid such provision, some of the companies are not following the said provision and are depositing the tax under CGST and SGST. Had the same tour been booked by an Indian tourist, then the place of supply would have been determined in accordance with section 12(2) of the IGST Act, and there would have been no need to bifurcate the turnover, State-wise. It is suggested that provisions in respect of inbound tour should also be made on similar lines.
2.2 Rate of Exchange to be considered in case the payment is received in Foreign Currency - If a tour package has been provided to an ex patriate and the payment has been received in the Foreign Currency, then the tax on such supply is required to be paid on the INR value of the supply.
As per Rule 34(2) of the CGST/SGST Rules, the rate of exchange for determination of value of taxable services shall be the applicable rate of exchange determined as per the generally accepted accounting principles for the date and time of supply of such services in terms of section 13 of the Act.
Inspite of the said sub-rule, certain issues need to be clarified, which are discussed through illustration:-
For example, B who is resident of the USA has booked a tour in India with PQR Ltd. (an Indian Company) for US $10,000. Now, B will pay the said amount in advance, i.e., before the tour is executed, let's say on 11-9-2018 (The rate of exchange on 11-9-2018 is assumed at 1 US $ = Rs. 70). As per the provisions under the GST, PQR Ltd. will deposit the tax on the amount received in advance by converting the said amount into the Indian Currency by following the GAAP provisions. If PQR Ltd. issued invoice dated 12-11-2018, and the rate of exchange is assumed to be 1 US $= Rs. 72, then there is ambiguity whether PQR Ltd would pay GST on the remaining value of the transaction or not? On the contrary, if the currency rate is reduced on the date of invoice, the question is whether the tour operator would get refund? In such cases, we are of the view that GST would be payable in accordance with section 13 of the Act, i.e., at the time of receipt of advance and no adjustment would be required for variance in the currency rate on a future date.
2.3 Travel Agents on commission basis - The major problem being faced by air travel agents under GST regime is whether the air travel agent may act as principal or not? For Instance-
M/s. ABC, an air travel agent, purchased 100 flight tickets from Delhi to Chennai in bulk from Spicejet at Rs. 4000 per ticket. As, the price of tickets based on demand and supply concept, it might be possible that the tickets on the last day are sold by ABC at Rs. 7,000 or Rs. 3,000. Here, the agent is selling the ticket at his own rate, i.e., either at profit or loss, depending upon various factors. In the abovementioned transaction, the question arises whether ABC is acting as principal or an agent?
3. Hotel Accommodation
3.1 Non-availability of ITC - In the case of hotel or restaurant services, if any person visits another State for business purpose, let us say for marketing, auditing, etc., then he will get tax invoice containing SGST or CGST of that State, where the hotel is located. The tax paid as CGST and SGST in one State cannot be claimed as ITC in another State. For instance-
(1) Employees of a company XYZ, having registered place of business in Delhi, go for a business meeting in Karnataka and stay in a hotel. In this case, place of supply would be Karnataka; therefore, it would be subjected to CGST and Karnataka SGST. Since XYZ is not registered in Karnataka, it would not get ITC even if the said service is used for furtherance of business.(2) A crew of PQR Films, along with the actors, producers, director, technician, etc., goes from Mumbai to Kerala for shooting of a film. It would have all the invoices, relating to the expenses head under discussion, containing Kerala GST and CGST (Kerala), thus, no offset is available in Maharashtra even if used for the purpose of business.
Due to the ineligibility of ITC, it might be possible that the companies might hold their business meetings only at their registered place of business, which will adversely affect the integrity of the country.
3.2 Ambiguity related to the rate of tax to be charged - Where several other services are also provided along with the hotel accommodation, a lot of confusion arises in relation to the rate of tax to be charged.
For example, A hotel is engaged in providing accommodation facilities along with various other services, such as Yoga classes, gym facilities, taxi services, food, etc. Suppose, the value of accommodation provided is less than Rs. 1,000, which will attract nil rate of tax as per the GST provisions but the ancillary services as mentioned above attract tax @ 18% and 5%. Now the questions arises following in such situation which need to be clarified:-
(1) Whether the said supply would be covered under the composite supply (taxable at nilrate) or as mixed supply? (2) If it would be considered as mixed supply, whether the whole supply will attract tax @ 18%? In such cases, the hotel would have to bifurcate the pricing structure to minimize the tax implications.
Concluding Remarks
4. GST is a mixed bag of better and easier rules and regulations, increased cost and compliances. There is a need to have a re-look in the aforementioned issues so as to provide a correct solution and to remove confusion among the taxpayers. The Government should issue clarifications or press releases regarding the practical difficulties being faced by the taxpayers. Moreover, some of the provisions of GST need to be reconsidered, such as the place of supply provision in respect to the inbound tour, as it is practically impossible to bifurcate the value of such supplies. By strong implementation and plugging in loopholes, the initial setbacks in policy implementation can surely be overcome.