India’s budget hotel industry has sought to be treated on par with small food outlets and dhabas and taxed at the lower rate of 5% under the upcoming Goods and Services Tax (GST) regime to be rolled out from July 1.
Such hotels — charging less than ₹2,000 a room per night — make up about 80% of the hospitality market in India and have sought a differential treatment compared with larger luxury hotels that are likely to face an 18% GST rate.
Higher room rates
The industry, in a representation to Revenue Secretary Hasmukh Adhia and several State finance ministers, has warned that a higher rate would force hotels to pass on the increased cost to customers, making budget hotels “unviable.”
The Federation of Indian Chambers of Commerce and Industry (Ficci), on behalf of the budget hotel industry, has written a missive to Mr. Adhia and also met finance ministers of several states, including Maharashtra, Kerala, Gujarat and Odisha to apprise them about their concerns.
State finance ministers could consider the issue at the 14th GST Council meeting to be held in Srinagar on May 18 and 19. The Council is likely to deliberate on and finalise the tax rates that will be applicable to different goods and services under the new indirect tax system.
A Ficci official said there is a fear that budget hotels will be clubbed with big hotels under the rate of 18%. “Affordability of budget hotels will go away completely. They will not remain budget hotels any more. This can also have a negative implication on tourism in that particular state... impacting the State revenues also.”
Ficci has pointed out that a 5% GST has been fixed for small food and beverage outlets, restaurants and dhabas . Hence, the logic of a low tax rate without any exemptions should also extend to the budget hotel sector.
“Currently, there is an exemption from service tax if the room tariff is less than ₹1,000… This exemption was provided in the year 2012 and has remained unchanged despite the price rise due to inflation,” A. Didar Singh, Secretary General at Ficci said in the letter to the Revenue Secretary. Hotels pay service tax in addition to luxury tax that varies across States.
“Any substantial increase in the taxes will leave no choice for these hotels but pass on the burden to the end consumer… Hotel accommodation with less than ₹2,000 per night room tariff should be please put under the 5% GST rate structure,” Mr. Singh wrote in his communiqué.
‘Seeking consensus’
“We will shortly be meeting ministers from U.P., Rajasthan and also the Goa Chief Minister… We are meeting them as they are part of the GST Council. As and when the rates get fixed, there has to be a consensus from everywhere,” a Ficci official told The Hindu, adding that ministers from Telangana, Assam and M.P. have been briefed on the issue.
Mr. Singh said that a lower GST rate for this category of accommodation will significantly increase domestic and foreign travel, thereby increasing tourism-induced employment and revenues.
