Effect of goods and service tax GST on inbound tourism and price competitiveness of India

Abstract

The Tourism industry is comprised of several verticals of the Service Industry and together, they contribute to the Indian economy by 9.2% in GDP (USD 247.3 Bn) and 8.1% in employment (Council, 2019). Such an important mover of the economy is susceptible to changes in the pricing of tourism products. Any fluctuation in the rate of GST affects the price of tourism products and ultimately affects the economy. Empirical evidence suggests that there is heterogeneity in price sensitivity for individual tourists. This makes it essential to define the relationship between price competitiveness and tourist arrival. The analysis of both secondary and primary data shows that, in the global context, there is no correlation between the price competitiveness of a country and tourist arrival with a heterogeneous tourism experience. However, price plays a determining role among countries with similar economic status and homogeneity in tourism experience. It was also found that the exchange rate and inflation in the host country must be considered in the offered price of tourism products. The price adjustment, through rationalisation of GST, should be done by competing countries and should not be compared in the global context. It was also noticed that the GST needs a conceptual rethinking, to be a primary mover of the economy. This study will help various stakeholders to devise a strategy for increasing the perceived value of a destination while keeping the absolute price in check. It will also help the Government of India in maximising the tax revenue for the welfare of citizens while knowing the limits of diminishing returns on tourist arrival. KEYWORDS Goods and Service Tax, Inbound tourism in India, Price competitiveness, Factors affecting tourist arrival in a countr newline