GST Impact on Weekend/Recreational Expenditure

[Craig Dsilva]

“Weekends don't count unless you spend them doing something relaxing.” 

With the introduction of the Goods and Services Tax on 1st July 2017 spending on leisure or recreation activities is expected to burn a hole in your pocket.

Below is a sample illustration:

Mr X and Mrs X are newly married. They are in their early 30’s. Mr X earns 7 Lakhs p.a. while Mrs X earns 7.56 Lakhs p.a. Hence their total income is 14.56 Lakhs (assuming net take home pay). They decided to follow a simple process of spending 25% of their income on Savings, Investments, Necessities and Recreational expenses respectively. 25% of ₹ 14.56 Lakhs is ₹ 3.64 Lakhs and hence per quarter the expense will be ₹ 91000/- Below is their recreational expenditure of ₹ 91,000 they are expected to spend for 13 weeks in the quarter.

			Before GST		After GST
Week No.	Particulars	Estimated Exp	Previous    Effective Rate*	Rs	GST Rate	Rs	Result
1	Movie Theatre  (price> ₹ 100)	1000	45%	450	28%	280	(170)
2	Amusement Park, Theme Park	2000	15%	300	28%	560	260
3	Bar & Restaurant	3000	18.5%	555	18%	540	(15)
4	Indian Premier League (price > ₹ 500)	4000	20%	800	28%	1120	320
5	Clothes Shopping  (price> ₹ 1000)	5000	7%	250	12%	600	250
6	Gymkhana/Club	6000	18.5%	1110	18%	1080	(30)
7	Disco/Pub/Lounge/ Luxurious Locations	7000	25%	1750	28%	1960	210
8	Helicopter Ride (15 Minutes)	8000	15%	1200	28%	2240	1,040
9	Shopping Mall (Branded Merchandise)	9000	12.5%	1125	18%	1620	495
10	Yacht Cruise (2 Hours)	10000	18.5%	1850	28%	2800	950
11	Casino/Betting (Horse Race)	11000	18%	1980	28%	3080	1,100
12	Upgrading Gadgets (Once in 3 Months)	12000	6%	720	12%	1440	720
13	Resort Vacation 2N/3D (Tariff>2500)	13000	22.5%	2925	18%	2340	(585)
	Total	91000	Net Increase				4,545

*Note: This refers to the average rate of tax in India. It includes Entertainment tax, Service Tax, Value Added Tax and other local body taxes.

As you can see from the sample illustration above, the couple will have to spend 5% {(4545/91000)*100} more on recreational expenses on account of GST.

Leisure lowers Stress and Depression. Mental wellness is an important part of your overall health and can impact your physical well-being. Recreation activities can help you better manage stress and reduce depression.

GST is an indirect tax. In indirect tax the ultimate burden is passed on to the customer. The big question is at what rate is the burden to be passed on? After the launch of GST, those having an optimistic view feel that multiple rates of taxes ensure that the major demerit of indirect tax being regressive in nature is done away with. It will reduce disparities between the rich and the poor.

But those having other views, feel that there should be a single rate of tax since the rich will spend more and will have an increased tax burden even with the same rate. For instance, if a hotel room is booked by a middle class person usually in a 3 star with a tariff of ₹ 5000 the person spends ₹ 900 as GST i.e. at the rate of 18%. If a rich person books a hotel room in a 5 star, with a tariff of ₹ 15000 the person spends ₹ 2700 as GST at the same rate of 18% which is more than the ₹ 900 spent by the middle class person. If the person is taxed at the current rate of 28% for 5 star hotel room then the person has to spend Rs  4200. The rich person will argue that this is a double punishment, since such a person is already paying more income tax charged at a higher slab rate.

Irrespective of the view and counter view mentioned above, Mr X and Mrs X will realise that there is an increase in their weekend expenses at an average rate of 5% as per the above illustration. Hence they will have only one question in their mind, “Kya yeh hai Achhe Din?”