Rohan Bhandare, Chairman of the Taxation Committee of Goa Chamber of Commerce and Industry, speaks on the Chamber’s vision for a simplified tax structure and a thriving tourism and manufacturing sector
GCCI has recommended a reduction in the GST on hotel bookings to 12%. Can you elaborate on how this move would specifically benefit Goa’s hospitality sector, especially in comparison to other competitive tourism destinations like Sri Lanka and Southeast Asia?
In today’s global economy, tourism is a significant driver of economic growth and different countries are implementing various strategies to attract tourists. Under the leadership of President of the Goa Chamber of Commerce and Industry Shrinivas Dempo, the Chamber has recommended that the upcoming Union Budget 2025 is the perfect time for the Government to not only boost Goa’s tourism industry but also provide an ease of compliance for the sector.
While we appreciate the efforts taken by the Government for the tourism industry, we believe that Goa can stand out more prominently with a unified tax rate of 12% on hotel accommodations. A few years ago, the reduction from the erstwhile 28% GST rate to 18% had a positive impact on the entire industry. It is now the need of the hour to have a single rate of 12% on hotel accommodations to promote the industry, and encourage more tourists to choose Goa as their tourism destination.
The GST rate on hotel rooms currently varies based on room tariffs. Do you believe a unified GST rate will lead to a more transparent and equitable tax structure for the hospitality industry?
Currently under the GST laws, rooms priced up to `7,500 per day attract a GST of 12% and those above `7,500 a day are covered under the 18% tax slab. The benefit of input tax credit for the restaurants in the hotel premises is also intricately dependent on whether the room tariff exceeds `7,500 or not. This has led to price disparities and increased compliances as the room rates are usually based on the demand and season.
For example, a room night costing `10,000 would be covered under the 18 per cent GST rate, while an off-season rate of `7,000 would be covered under the 12 per cent GST rate. These rates are further made more complex due to the concepts of composite supply and mixed supply under GST, which determine the tax rates of other ancillary services provided by the hospitality industry. A single GST rate of 12% simplifies the tax structure, making it easier for the hospitality industry to manage their pricing and reduce administrative and financial compliances. The lower tax rate would reduce the overall cost of hotel stays for tourists and make travel more affordable as compared to other destinations.
GCCI has suggested that restaurants be given the option to choose between 5% GST without input tax credit or 12% with input tax credit. How would this flexibility impact the restaurant industry in Goa, and which option would most likely benefit local businesses?
Goa has a diverse range of restaurant establishments and the flexibility of choosing between two GST rate options will help restaurants to choose a regime which suits their business model. Under the current GST regime, standalone restaurants are required to charge GST at 5% without the benefit of input tax credit.
However, today in Goa a major expense for many restaurants is the rent for the premises which is taxed at 18%. Further restaurants also spend significantly on sales promotion, marketing and expensive materials. This tax cost has to be absorbed by the restaurants, which stresses the working capital and ultimately increases the prices of the products. Further, smaller hotels having restaurants in their own premises have to keep meticulous working of reversing the common input tax credits on its inputs and services which are shared together by the hotel and the restaurant.
Having this dual option system will not only help small standalone restaurants with lower input costs to take benefit with 5% GST and lower compliances, but will also help established restaurants with higher input costs to ease their cash flows and avail the benefit of input tax credit.
Offering a choice in GST rates will also allow restaurants to adjust their pricing strategy and make dining more affordable.
You have mentioned that rationalising GST rates and slabs is critical to correct inverted duty structures. Could you explain ‘inverted duty structures’ and how simplifying these rates will benefit businesses in Goa?
Inverted duty structures in GST generally arise when the tax rate levied on raw materials (input) exceeds the tax rate of the final product (output). This excess input tax situation and accumulation of tax credit in the electronic credit ledger of taxpayers results in the blockage of working capital and cash flows of taxpayers. The liquidity crunch ultimately affects the cost of the products, and Goan industries lose their competitive edge in the market. Further, the industry also faces compliance hurdles when claiming the refund of these accumulated input credit taxes. While the Government has been taking initiatives to address these matters for certain sectors, addressing this matter is challenging since it requires balancing the interests of both upstream and downstream segments of industry.
GCCI has recommended a macro approach of rationalization of the GST rates to have a balanced tax structure. With a wide base of GST registrations, technological upgradations and record GST collections, this is the right time to rationalise the rates and reduce the slabs of GST to minimise the tax burden and eliminate inverted duty structures. Streamlining GST will help in minimising the instances of applying for refunds, avoiding classification disputes and will provide an ease of doing business to the taxpayers.
GCCI’s wishlist includes simplifying income tax provisions. Could you share more details on the proposed amendments to income tax, particularly the suggested increase in the basic exemption limit and the rebate under Section 87A? How do you think these changes will impact taxpayers in Goa?
In line with the announcement of a Comprehensive Review of the Income Tax Act in the last Budget speech, GCCI has provided various suggestions to simplify income tax, reduce disputes, minimise litigation, and provide greater tax certainty to taxpayers. GCCI has suggested that the review should not have an adverse impact on the tax liabilities of the taxpayers and should either provide relief to the taxpayers or be tax neutral. In cases where the review exercise results in a minor additional tax liability to the taxpayers, we have suggested that necessary legacy provisions be enacted under the said provisions so that taxpayers have a smooth transition to the new regime. GCCI has also suggested that the review should bring stability in the tax laws since one of the reasons the Income Tax has become complex is the frequent changes made to the statute.
The raising of the income tax threshold limits has been a long pending demand of the salaried employees and non-corporate tax payers and a higher income tax threshold will not only alleviate the financial burden of rising household costs but will also ensure that there is more money in the hands of the taxpayers. This will lead to higher consumption and increase in the economic growth. While the standard deduction has been allowed as a deduction under the New Scheme of Taxation, the amount is still insufficient for Goan taxpayers considering, the high cost of living.
Hence, GCCI has suggested raising the basic limit of the income tax slab to `5 lakhs, an increase in the standard deduction to `1.5 lakhs and a commensurate increase in the rebate u/s 87A.
GCCI has recommended abolishing cesses and surcharges. How do you think removing these additional taxes will affect businesses in Goa?
Cesses and Surcharges are meant to be levied sparingly to meet a specific requirement and are generally mandated for a temporary period of time. However, it has been observed that there has been an increase in the rates as well as in the nature of cesses and surcharges over the years.
The timelines for which cesses and surcharges are levied are also open ended. While the Goods and Services Tax has helped to abolish a number of cesses, the cesses and surcharges are still prevalent in the Income Tax Act.
The highest surcharge under the old regime of taxation for individuals is 37% while the highest surcharge under the new regime of taxation is 25%. For corporates entering the new scheme for taxation, the surcharge is at 10% without any threshold of the taxable profits. Further, the Health and Education Cess is additionally charged on the tax rate plus surcharge at 4%.
Streamlining the cesses and surcharges will decrease the overall tax rates for individuals and corporates, and bring about tax certainty, which is a cornerstone to the ease of doing business.
The proposal to extend the 15% concessional tax rate for new manufacturing companies has been highlighted in your wishlist. How important is this measure in boosting Goa’s manufacturing sector, and what kind of businesses would benefit most from this concession?
In 2019, the Government had introduced a concessional tax rate of 15% for newly setup manufacturing companies incorporated on or after 01.10.2019 and commencing manufacturing/ production by 31.3.2024.
This 15% tax rate for manufacturing companies has been very competitive as compared to other economies, and has not only helped to promote manufacturing in Goa but has also encouraged foreign companies to set up manufacturing base in Goa. However, the conditions to avail this benefit have expired on 31st March 2024.
Today, the world is looking at India as a global manufacturing hub. To spur investment in the manufacturing sector in Goa in line with the ‘Make in India’ initiative, GCCI has suggested that this provision be extended to 31st March 2028. The extension would in turn help in driving employment and economic activity.
Finally, GCCI has emphasised the need for faster disposal of appeals at the Commissioner of Income Tax (Appeals) stage. What are the main barriers that currently slow down this process, and what changes would you recommend to streamline this procedure for businesses and taxpayers in Goa?
There is a legal dictum: ‘Justice delayed is justice denied’. Currently, the Income Tax Act does not provide any mandatory timeline for disposing appeals at the Commissioner of Income Tax (Appeals) stage.
It only suggests a timeline of one year from the year in which appeal is filed. This has led to a large number of pendency of cases at this stage, leading to undue financial hardships to the taxpayers.
Generally, the taxpayers can get a stay of demand on paying 20% of such demand till the pendency of their appeals before the Commissioner (Appeals). But, since such appeals have been pending for many years, there have been cases where the Department has adjusted the subsequent year’s refunds against such demands.
Further, these pending demands face an interest of 18% per annum, which keeps accumulating until the pendency of their appeals.
The Government has been taking initiatives to address the matter by deploying more officers and launching the new ‘Vivad Se Vishwas Scheme 2024’ to reduce litigation. The Chamber has suggested that a time barring limit is brought at CIT(Appeals) stage for quick disposal of appeals and that no recoveries should be made from taxpayers during the pendency of appeals.
This will bring about tax certainty and lead to a more efficient and effective tax administration system.
