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GST rates dampen the spirit of Hotel Industry

Thursday, June 8, 2017, 15:29 Hrs  [IST]

The GST rates decided by the GST Council in its sitting at Srinagar have drawn flak from the hospitality industry in the country. The decision to bracket all hospitality products above INR 5,000 as luxury was the last thing the hospitality industry in the country wanted. The move to create different slabs of tax rates based on the room tariff, according to industry experts, is flawed, when about 65 to 70% of the classified room inventory in the country would invite 28% tax. This effectively will make the country’s tourism products uncompetitive in the region. The industry also fears major events, congresses, conferences, etc., giving a miss to India in coming times.
   The industry blames government’s continuing ill-conceived mindset of looking anything associated with hotel industry as ‘luxury’ rather than provider of infrastructure behind this decision. There is also deep resentment in the industry for clubbing hotel industry with gaming, betting, casinos, etc. Along with rooms, even dining at restaurants at 5-star hotels will invite GST at the rate of 28% which again will drive away people from restaurants in hotels leading to job loss. However, budget hotel segment welcomed the proposal to create four slabs. Hospitality Biz speaks to few industry players to gauge the impact of this development.

Nakul Anand, Chairman, FAITH
Upon implementation, this slab (28% GST) will make India hugely uncompetitive while quoting rates in the global market. A levy of 28% has the potential to create unprecedented damage to the tourism industry from which India will find it extremely difficult to recover. Not only will this impact inbound tourist traffic, but also spur the domestic meetings and conferences segment and holiday makers to increasingly travel to our South and East Asian competitors, rather than within India, since these destinations will seem even more lucrative now. The overall impact of all of the above on our foreign exchange earnings reduced stays in Indian hotels and lost investment attractiveness of hospitality and tourism as a sector will result in large scale unemployment. The clubbing of the hospitality industry with the likes of gaming and racing in the same GST slabs, which are speculative and do not contribute to nation building has already dealt a major jolt to the investment community.

Manav Thadani, Chairman - Asia Pacific, HVS
The introduction of GST is appreciated by the industry. However, to club luxury hotels along with the sin item is not correct as they have been placed in the highest bracket of 28%. Is eating in hotel restaurants a crime? Is having AC in the Indian climatic conditions a crime? At INR 5,000 (USD 80) we are at the budget level for most of our neighbouring countries. If they wanted to keep a difference the slab level should have been at least double of what is prescribed. So overall I have to admit most of us are disappointed with the GST rates. HVS is already working on putting together a comparison report as to where we stand on taxes with our neighbouring cities in Asia and at a global level. The question is if we are going to remain competitive enough or have we priced ourselves out of the same already.

Mandeep Lamba, MD-India, Hotels & Hospitality Group, Jones Lang LaSalle Property Consultants India
While I think it is a welcome initiative to create various tariff slabs, it really is unfair to classify hotels with a room tariff of INR 5,000 in the luxury segment to attract the highest GST tax slab. This step is regressive and will slow down our in-bound tourism arrivals and make India less competitive within the region at a time the industry needs all the support it can get from the government after having witnessed almost eight consecutive years of difficult times and has been struggling to find a balance which seemed to now be in sight with operating performances showing signs of steady improvement across key cities. I do hope that the government will review its decision and look to cap the GST at 18% for the hospitality sector recognising the sector as a leading foreign exchange earner and employment generator.

Dr. Ankur Bhatia, Executive Director, Bird Group
Hospitality industry in India, a big contributor to the country’s economic growth is on high growth trajectory and is expected to reach INR 2,796.9 thousand crore by 2022. The industry also contributes significantly to employment, FDI and Foreign exchange.

However, recently the industry has already been severely impacted by the Supreme Court liquor ban and the much awaited Goods and Services Tax (GST) rates has come as another shocker. These high and complex GST rates will create further impediments to the industry’s growth which is still maturing. At the same time the new tax structure will also position India poorly as a destination vis-à-vis our competitors in the international market that have much lower taxation.

Shwetank Singh, VP – Development & Asset Management, InterGlobe Hotels
The Goods and Services Tax (GST) is a great move by the government to make the tax base transparent and inclusive. It will bring in a lot of simplicity in the current taxation structure that comprises various levies and is complex for the end consumer.
The hospitality sector is projected to cater to 7.2% of the GDP by 2026 and we anticipate uniformity in the tax structure for hotels that will dispel the current confusion and help us grow. As per the proposed structure, the hotels that have room rates above INR 5,000 will fall in the higher tax bracket whereas, for the mid-market and economy range, the business continues unwavering in the 18% bracket. We need to wait and watch the space for F&B as the classification is a bit complicated owing to divisions based on air-conditioning. I feel, there is a further need for the government to simplify this so as to curb any inflationary trends due to the new tax regime.

Description of services Rate Credit eligibility
Tour operator services 5% Without credit
Hotel accommodation Hotel having room tariff more than INR 1,000 and less than INR 2,500 12% With credit
Hotel having room tariff more than INR 2,500 and less than INR 5,000 18% With credit
5-star and above rated hotel where room rent is more than INR 5,000 and above per night per person 28% With credit
Restaurant services AC or having heating facility or having liquor license or both

Restaurant services in 5-star or above rated hotel

With credit

With credit
Air travel booking agent services Domestic bookings

International bookings
18% on commission or 5% of basic fare

18% on commission or 10% of basic fare
With credit

With credit

CK Baljee, Chairman & MD, Royal Orchid Hotels
The GST rates on hospitality industry came with a big surprise for us. And for a group like ours which got 5-Star, 4-star and budget hotels in the portfolio it’s a mix of good and bad news. On one side it is positive for the budget hotels as the rates are lower than the one operating at present and will definitely ease the pockets of travellers, but on the other side staying in luxury hotels will get more expensive as it got the highest tax incidence of 28%. This will bring additional burden to guests who are choosing a luxury stay because even the restaurants in these hotels will attract 28% rate which I personally feel is a little unfair

SM Shervani, MD, Shervani Hospitality & former President, FHRAI
It is sad that in today’s day and age the government sees INR 5,000 as luxury. India has to compete with its neighbouring countries. Liquor ban, portion control and high taxation will kill the industry. The government is charging zero tax to fivestar hospital rooms which charge above INR 5,000 for their rooms. My advice to hoteliers is to give glucose free to every guest and claim to be in healthcare!

Sanjay Sood, President, HRANI
It has come as a shocker to the hospitality industry. Four tax slabs of 5%, 12%, 18% and 28% are too complex, high and uncompetitive. GST quantum of 28% on the rooms above INR 5,000 is disproportionate, excessive and absolutely contrary to the stated aim of government to promote tourism.

Garish Oberoi, VP, FHRAI & Treasurer, HRANI
Unfortunately hotel projects are being viewed as juicy pieces of enterprise and soft targets through which the maximum can be extracted through taxes or otherwise. It is really sad to note that after various industry associations’ representations to the FM including GST Council and state/central governments, the hotels and restaurants are badly hit by the same. We are depressed to note that the hotel rooms with the tariff above INR 2,500 and up to INR 5,000 and AC restaurants with liquor bar is considered as luxury with an applicable rate of 18% and the most hurting is rooms above INR 5,000 will be levied at 28% is putting a damper on hospitality and tourism industry.

Dilip Datwani, President, HRAWI The Government should realise that while neighbouring countries like Myanmar, Thailand, Singapore, Indonesia and others levy taxes ranging from 5 to 10%, we cannot afford to have these kind of complex and high GST. This is simply not viable. Tourists will simply skip India.

Rishi Puri, VP, Lords Hotels & Resorts
Post successful initiatives like Make in India, Swachh Bharat and Startup India, we were hoping for a more reformative GST that would have rationalised the tax structure and made India a more competitive tourism destination. Unfortunately, the recently announced GST rate for hotels will do just the opposite. By increasing the rate to 28% for mid-to-high class hotels priced above INR 5,000, inbound tourism will take a hit by at least 10%. More ironic is the zero tax on hotels with tariffs of INR 1,000 or below. The signal that is being sent out is, India would prefer only back-packers and for those with more money spends should look for other destinations.

Ritesh Agarwal, Founder & CEO, OYO
A lower tax rate for budget hotels sector will ensure that the industry’s quality upgrade continues while delivering standardised accommodation to millions of middle-class travellers. This will also save and create thousands of new jobs which could have been impacted under higher tax-rates. Hotels are the single biggest contributor to tourism industry which accounts for 7.5% of the GDP. I would like to thank hundreds of people who worked behind-the-scenes to ensure that concerns and representations of budget hoteliers were heard at the highest levels of government.

Transportation & Aviation
Description of services Rate Credit eligibility
Transportation of passengers by air for economy class 5% With credit of only input services
Transportation of passengers by air for other than economy class 12% With credit

Transport of goods by air for outbound cargo 18% With credit
Transport of goods by air for inbound cargo Exempted Without credit
Lease of aircrafts to scheduled airlines for scheduled operations 5% With credit
Passenger transport by road Renting of motorcab 5% Without credit
Renting of motorcab (If fuel cost is borne by the service recipient) 18% Not specified
(i) Air conditioned contract/stage carriage other than motorcab 5% Without credit

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