Does GST Increase the Cost of Compliance? Evidence from Hotel Businesses in Western Uttar Pradesh

Abstract

The implementation of the Goods and Services Tax (GST) in India in 2017 brought significant changes to the indirect taxation system by introducing a unified digital tax structure. However, the associated filing, documentation, input tax credit reconciliation, and reporting requirements have created additional compliance challenges for businesses, particularly in the hospitality sector. This study examines the determinants and implications of GST compliance costs among hotel businesses in Western Uttar Pradesh, focusing on the influence of firm size, hotel category, digital literacy, GST knowledge, consultant dependence, tax rate-slab complexity, and filing frequency. Adopting a cross-sectional explanatory sequential mixed-methods research design, the study combines quantitative survey data collected from hotel owners and managers across five districts with qualitative insights obtained through semi structured interviews with hoteliers, tax consultants, and GST practitioners. The quantitative data are analyzed using confirmatory factor analysis, correlation, multiple regression, mediation, moderation, and structural equation modelling, while thematic analysis is employed to interpret the qualitative findings. The findings indicate that GST compliance costs are disproportionately higher for smaller hotels, particularly those providing both accommodation and restaurant services. Monthly filing frequency, consultant dependence, and rate-slab complexity significantly increase perceived compliance burdens, whereas digital literacy and GST knowledge help reduce them. Furthermore, higher compliance costs negatively influence hotel profitability and increase the likelihood of tariff revisions, with smaller establishments experiencing a stronger adverse impact. The qualitative findings highlight challenges related to input tax credit reconciliation, dependence on tax consultants, ambiguity in rate classification, and unequal benefits from digitalization. The study concludes that GST compliance costs are regressive in relative terms and disproportionately affect small and medium-sized hotel establishments. It recommends simplified compliance procedures, improved digital-literacy initiatives, clearer tax-rate guidelines, and targeted support for seasonal and pilgrimage-oriented hotels to promote equitable taxation, operational efficiency, and sustainable growth in the hospitality sector.