india

Updated: Sep 19, 2019 03:53 IST

The Goods and Services Tax (GST) Council will consider reducing tax on hotel room tariffs ranging between Rs7,500 and Rs10,000 per day from 28% to 18% at its meeting on Friday, but there is no proposal to cut GST on the automobile and real estate sectors, a senior government official said on condition of anonymity.

After several states demanded a reduction of GST on room tariffs to promote tourism, the Fitment Committee has proposed rationalising one of the four slabs pertaining to hotel rooms. The panel discusses requests from various industries for GST reductions

Currently, no GST is charged on room tariffs below Rs1,000 per day. A 12% tax is levied on tariffs above Rs1,000 but below Rs2,500. An 18% tax is levied on room tariffs between Rs2,500 and 7,500. Rroom rents above Rs7,500 fall in the 28% tax slab.

“The move will certainly provide relief to the hospitality industry. However, from a policy standpoint, it’s better to delink the rate with price point of a product or a service,” Pratik Jain, partner & leader of the indirect tax practice at PwC India, said. “ Also 28% category was not initially envisaged for services. Hence there is a case for bringing 28% tax slab for services down to 18%.”

On the automobile and real estate sectors, neither the centre nor state governments are willing to cut GST rates because of the huge revenue implications a reduction would have, the official cited in the first instance said. It is estimated that implications of a tax reduction from 28% to 18% on automobiles alone would be about Rs60,000 crore, which would also necessitate a reduction of duties on auto components, the official said.

A final call on all these matters will be taken by the GST Council, which is holding its 37th meeting in Goa, the official said. GST Council is the apex decision-making body on indirect taxes and is chaired by the Union finance minister; it is composed of the finance ministers of states and union territories. Conventionally, all decisions of the council are unanimous.

Summing up the views of states and the union government, the official said, both the real estate sector and the automobile industry should forego a part of their profit margins to boost demand instead of expecting GST rate cuts.

The automobile industry is struggling with a downturn that has caused sales to decline for 10 months in a row. The industry also faces the challenge of switching from Bharat IV to Bharat Stage VI emission norms that kick in from April next year.

“There is no scope for us to cut prices of automobiles. We are demanding the government cut taxes on automobile because our margins are under huge pressure because of regulatory demands such as shifting from BS-IV to BS-VI that involve huge capital investments,” an automobile industry representative said on condition of anonymity.

The automobile industry produced a total 12,020,944 vehicles including passenger vehicles, commercial vehicles, three wheelers, two wheelers and quadricycles in April-August 2019, down from 13,699,848 in the same period last year, a decline of 12.25%.