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GST services tax rates: Hotels to be charged 12-18%, casinos, cinemas at 28%

India moved towards a multi-tiered service tax structure with the Finance Minister Arun Jaitley-headed GST Council deciding on Friday to place services under four slabs—5, 12, 18 and 28 percent— compared to the current uniform 15 percent levy on all eligible services.

“GST in relation to the service sector was completely adopted in today’s meeting,” Jaitley told newspersons after the conclusion of the two-day GST council meeting in Srinagar.

“In the services sector depending on the nature of the service, and for special reasons, various categorisations have been made,” he said.

Jaitley said that the current exemptions on services such as healthcare and education will continue, and the overall impact on services costs after GST will be non-inflationary.

“The weighted average and given the large number of exemptions, the impact (inflationary) will be significantly below that. Keep one fact in mind that they will also start getting the input credit of goods consumed,” he said.

Transport services including air services and goods transport will be taxed at 5 percent from the existing 15 percent, raising prospects of lower air fares after GST’s roll-out from July 1.

Most other services split up into 12-18 percent, Jaitley said.

Restaurants with an annual turnover of less than Rs 50 lakh will fall under the 5 percent tax slab, while non-ACs food joints will be taxed at 12 percent. Air-conditioned restaurants with liquor licences will be taxed at 18 percent.

Hotels and lodges will a tariff below Rs 1000 a day will be exempted from GST, while those with a room rate of between Rs 1000-Rs 2,500 will be taxed at 12 percent. Five star and luxury hotels will be taxed at 28 percent.

Services related to gambling, race club betting and cinema halls will also be taxed at 28 percent.

Cinema halls were currently paying a service tax of 15 percent plus a state entertainment tax that ranged from 28 percent to about 100 percent. All these will be subsumed under the 28 percent GST rate, bringing out the costs of service significantly, Jaitley said. Casinos will also come under the 28 percent tax bracket.

Work contract services such as those paid by civil contractors for infrastructure construction currently pay a central tax of 6 percent, state taxes ranging from one to five percent, but without any input credit.

Input credit means at the time of paying tax on output, a producer, trader or service provider can reduce the tax already paid on inputs.

In the current system, work contractors were paying a lot of embedded taxes. For instance, they used to pay a tax on cement that they procure as well as other taxes.

Under GST, they will pay a uniform GST rate of 12 with all input credits available.

“So, effectively, though the rate is 12 percent, the level of taxation with input credit will come down below the present level,” Jaitley said.

The finance minister said most of the work relating to GST’s rollout from July 1 has been completed.

“We will also be looking at the state of preparedness of GSTN,” Jaitley said.

Goods and Services Tax Network (GSTN), a special purpose vehicle (SPV), is a robust IT backbone and portal to enable real-time taxpayer registration, filing returns, handle invoices, execute inter-state tax settlements, and connect states for two-way data flow.

Jaitley said GST rates on six categories of products—bio-diesel, beedi and cigarettes, footwear, textiles, agricultural implements and gold—will be finalised in the council’s next meeting on June 3 in Delhi.

On Thursday, the Council fixed rates for thousands of goods, placing these in four slabs—5, 12, 18 and 28 percent.

An officers’ panel over the last six weeks had been working towards the fitment or classification exercise – an exhaustive list specifying the tax rate of goods and services, which was presented at the Council meeting.

The fitment panel has been working on the principle to fix tax rates closest to the present incidence of taxation on good or services.

The final rates have been fixed in a way such that the impact on inflation as well as revenue to the government is near neutral.

The two-day GST Council meet began today in Srinagar, as ministers and officials from 29 states and union territories, along with Jaitley and senior finance ministry officials converged in the Jammu and Kashmir capital to decide and fix rates on a long list of goods and services.

GST, billed as India’s most ambitious reforms move, will stitch together a common national market, dismantle fiscal barriers among states and consolidate a patchwork of local and central duties into a single levy.

“Hopefully, the remaining decisions will be taken on June 3,” Jaitley said.

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