By Rameesh Kailasam
The Goods and Services Tax (GST) was meant to simplify taxes and remove the unpredictability of indirect taxation that existed during the VAT regime. This, it can be said, seems to have been achieved commendably. However, certain sectors wherein reasonable clarity already existed from a central standpoint—under the erstwhile service tax regime—are facing complications under the GST regime. One such sector which continues to suffer is the travel and hospitality sector. Since the inception of the GST regime, e-commerce operators (ECOs) in the travel space, especially the online travel agents, have been burdened with a large number of compliance requirements. It is important to note here that this sector has also suffered the most during the pandemic, amidst lockdowns and travel restrictions.
The complications and contradictions this sector faces have continued to increase with newer regulatory changes.
For instance, transportation services provided by way of non-air-conditioned contract carriage and stage carriage are currently exempt from payment of GST vide Notification No 12/2021-CGST (Rate) dated June 28, 2021. However, the Union government, vide Notification 16/2021-CGST (Rate) and Notification No 17/2021-CGST (Rate) dated November 18, 2021, intends to make ECOs liable to pay GST in respect of these services, when these are supplied through the online mode. Thus, the aforesaid services—which are per se exempt under the GST law—become taxable merely because they are supplied through the online mode. Such categories of services are availed by a large strata of society and will unnecessarily increase the overall cost of such services when booked online, thereby forcing commuters to queue back at bus-ticket counters and stations, which is undoubtedly risky in these pandemic times. This also discourages and defeats the Digital India initiative of the Union government by making online services dearer. It is therefore important and critical that this amendment effective from January 1, 2022, is withdrawn immediately.
The GST law also prescribes an annual turnover threshold of `20 lakh for obtaining registration under the regime. However, while the hotel service providers who report turnovers below the prescribed threshold are exempt from payment of GST, the same accommodation services provided by them become taxable for the customers when availed in the online mode through an ECO, thereby increasing the financial cost accruing to the consumer. Customers booking accommodation through ECOs are also at a disadvantage as they have to pay the additional cost due to GST when services are booked online, whereas an offline booking does not involve any such GST-cost for them. It is therefore important that this distortion in the Notification No 17/2017-CGST (Rate) dated June 28, 2017, is amended at the earliest to exclude ECOs from payment of GST on hotel accommodation services provided by entities that are not liable for registration under Section 22(1) of CGST Act.
Also, as per the Section 9(5) of the CGST Act, read with Notification 17/2017-CT (Rate) dated June 28, 2017, and Section 52 of the CGST Act, ECOs required to discharge GST on notified services or deduct Tax Collection at Source (‘TCS’) have to obtain GST registration in all the states and registration is required in the state where hotel is located to discharge CGST+SGST liability on behalf of such unregistered hotels. This causes undue hardship and certainly imposes a considerable cost burden in terms of physical office space, manpower and administrative requirements towards this end, the need to file multiple returns, issue invoices, maintain multiple records and books with state-wise split of financials. Further, it also leads to extra-territorial jurisdiction of the state authorities and multiple investigations on the same transaction, as the state authorities are not only reviewing transactions falling under Section 9(5) and/or Section 52 of the CGST Act, but also are questioning other business transactions, including transactions undertaken through the head office.
ECOs, today, are also dealing with multiple types of registrations in one state, i.e., for regular GST registration under Section 9(5) and TCS registration under Section 52, they are assigned different administrative authorities. In addition, Union and state government authorities are cross empowered to undertake audit and assessment/investigation. Hence, this issue collectively leads to ECOs receiving multiple notices and summons from multiple authorities on the same issue in each state. This issue assumes greater significance for ECOs as they are required to be registered in each state due to the nature of their business, which translates into hundreds of notices at the pan-India level.
The simplest solution for this would have been to ideally allow ECOs to comply with Section 9(5) and 52 of the CGST Act from a centralised GST registration point of view, and they should not be required to obtain registration in each state when it comes to complying with requirements under Section 9(5) of the CGST Act and Section 52 of the CGST Act. By doing so, there will be no loss to the government because the state GST component within the IGST, charged from centralised location, would certainly accrue to the states.
These issues, unless addressed quickly, may end up seriously hurting the online travel start-up space in India.
The author is CEO, Indiatech.org