The Telegraph
Monday , July 17 , 2017

Duo grapple with GST anomaly

New Delhi, July 16: The goods and services tax (GST), which is expected to give a renewed push to growth, has hurt two major sectors - the $136-billion tourism industry and the $108-billion textile industry.

The tourism sector, which accounts for about 7.5 per cent of GDP and is the second-biggest contributor to the country's forex earnings, is upset on two counts.

The first grouse is that while tour operators will pay a 5 per cent GST on their services, their input taxes will be far higher. The other worry is the 28 per cent tax on five-star and four-star hotels.

"The 28 per cent tax is a huge burden... we foresee domestic clients who used to opt for 5-stars shifting downwards and foreign package tours from Southeast Asia and West Asia undercutting us because of the way GST is designed or rather is not designed," said Sarabjit Singh, vice-chairman of the Federation of Associations in Indian Tourism and Hospitality (FAITH), an umbrella body of 10 tourism organisations.

"The problem is that we are not used to working out value-added taxes in the services sector. This is an organised sector and, hence, has come up with its analysis of how the tax is affecting it... other services may also have glitches," said Biswajit Dhar a professor of the Jawaharlal Nehru University.

The federation tried to build a strong case before the finance ministry for a 5 per cent GST for the entire sector as half of the country's tourism infrastructure capacities - hotels, convention centres - are lying idle.

"This will generate more revenues and taxes as capacity utilisation will go up and increase employment by 20-25 per cent," said Singh.

The tourism industry is estimated to account for nearly 13.5 million jobs.

"We had given examples of 20 other countries where the GST is low and which are recording large tourist arrivals," said Singh.

The association's second plea is that any transaction in foreign exchange in the tourism sector should not be taxed as these were exports and exports attracted nil duties.

The tourism industry is knocking on the doors of the North Block and state finance ministers to try and get some clarity and simplification in the tax structure.

Textile torment

An ongoing strike by textile merchants is believed to have led to a loss of Rs 40,000 crore even as the agitation failed to resolve the problem faced by the industry - the commodity tax is less than the tax on intermediate inputs.

Tax on a sari is just 5 per cent when sold by a wholesale trader, but the yarn from which it is made faces an 18 per cent tax. Moreover, the GST on the powerloom which turns it into sari material is 5 per cent as also the printing unit which prints the designs on the sari. Till now, fabrics were fully exempt from taxes but not yarn or garments.

"Typically, if a sari costs Rs 1,000, the yarn costs Rs 300, the powerloom adds Rs 400 value to it, the printer adds another Rs 100 and the trader has a margin of Rs 100. If the powerloom pays a tax of 5 per cent, it's tough for the merchant to get the higher input credit the yarn mill had paid, nor the other taxes paid by the others in the chain as he is sub-contracting work," said Manmeet Singh Kohli, a Delhi-based garment wholesaler and exporter.

"The crux of the matter is that the input credit is higher than output tax... this is a peculiarity of the textile business," said Dhar. Textile dealers point out that earlier yarn manufacturers paid a 12 per cent VAT and there was then no tax on a sari.

However, revenue officials say the main reason why the textile traders are up in arms against the GST is that they are used to paying no taxes at all. The prospect of paying taxes and revealing their actual profits has triggered the strike engulfing a major part of the production and trading hubs, including Prime Minister Narendra Modi's home state of Gujarat.

The domestic textile industry is the second-largest employer after agriculture, providing jobs to over 45 million people directly and 60 million people indirectly.

Officials said major textile producing states such as Tamil Nadu and Punjab had sought lower levies as they feared higher taxes could result in a quicker collapse of the sector.

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