GST rates on hospitality and tourism industry

The revised tax rates on services provided by hospitality and tourism industry are being criticised by industry experts who think that the end consumer might have to bear the burden.

The tourism and hospitality industry in India recently got updated with a new set of Goods and Services Tax (GST) rates that will be rolled out from July 1. It will be applied on their services based on the tariffs and turnover they draw, the GST council has finalised.

While budget hotels i.e. those with INR 1,000 a day for rooms, will attract low or even nil tax rates, those charging INR 5,000 and more room tariff per day will have to pay 28 pc GST.

Currently lower budget hotels make up about 80 pc of the hospitality market in India.

“Levying 28 pc on luxury and five-star hotels is myopic,” Achin Khanna, managing director, consulting and valuation practice, at consulting firm HVS told the Indian press.

The industry insiders and experts have been reported to be dissatisfied with the new rates.

“Hotels charging more than INR 5,000 do not automatically mean they are a luxury hotel or catering to want based travel,” Khanna commented while also saying that the move will also impact end customers.

Pointing out the importance that hotels and restaurants have on tourism, industry experts have commented that they should have qualified for lower tax slabs.

“The government has not realised the importance of providing impetus to hospitality and tourism sectors, which are one of the highest employment generating sectors,” Riyaaz Amlani, president of National Restaurant Association of India said to an Indian daily.

While the protection of hotels with smaller budgets is being appreciated, industry insiders think that the tax bracket for others is not justifiable and will hinder the sector in maximising its potential.

Hotels and lodges that charge INR 1000 a day or less are exempted from the GST, those charging  INR 1,000 to INR 2,500 will be taxed at 12 pc ,which is a slight reduction from the current rate of 13-14 pc. Those with a tariff between INR 2,500 to INR 5,000 will have to pay 18 pc tax. Similarly, small restaurants with an annual turnover of less than INR 50 lakh will be taxed at 5 pc and other non-air-conditioned restaurants will be taxed at 12 pc and air-conditioned restaurants will be taxed at 18 pc.

The lower rate for budget hotels “will ensure that the industry’s quality upgrade continues while delivering standardised accommodation to millions of middle-class travellers, ” said Ritesh Agarwal, the founder OYO Rooms. “This will also save and create thousands of new jobs, which could have been impacted by higher tax rates,” he added. OYO Rooms is one of the largest budget hotel network in India spread across 182 cities.

As food and tourism is an integral part of the Indian experience, the burden that the revised rates might have on the end consumer might also hamper the industry and is being seen in a negative light by many insiders.