Tourism Ministry wants lower GST for hotel rooms

Seeks 28% rate only on rooms priced above ₹10,000 a night

Rising spending by domestic travellers in India and Indonesia is prompting international hoteliers to build budget and mid-scale brands in the world's second and fourth largest populations. Ginger, run by the Tata Group's Indian Hotels Company, owner of Taj hotels, has 24 budget hotels in India.

Ahead of the upcoming meeting of the GST Council on Sunday, the Tourism Ministry has sought lower tax rate for hotels rooms under the new indirect tax regime, stating that the higher rate of 28% will hurt the sector.

The GST Council had in its meeting held in Srinagar last month said that accommodations where room rent is ₹5,000 or more per room for a night will attract 28% GST.

Rooms with tariff between ₹2,500 and ₹5,000 will attract 18% GST, while those with tariff between ₹1,000 and ₹2,500 will fall in the 12% slab. Services by lodging providers with tariff less than ₹1,000 are exempt from GST.

“Hotel is a key component of the tourism industry…each hotel room helps create atleast 4-5 jobs. We need to build at least one lakh new rooms in the country. For this, we need the right environment…GST rate of 28% is going to hurt the sector,” Tourism Secretary Rashmi Verma told  The Hindu .

In a letter to her counterpart in the Finance Ministry, Ms. Verma has requested that either the tax rate be brought down to 18% or the threshold for a 28% GST be increased to rooms with tariff of more than ₹10,000 per night.

The Secretary said that the current tax incidence on these rooms currently was in the range of 19-21%. “An increase of about 7% will be a bit much to absorb both for the service provider as well as the customer.”

The 28% tax will also impact adventure camp operators and houseboats in Jammu and Kashmir as these too charge around ₹5,000 per night. Additionally, if the 28% GST rate goes through, it is likely to make India uncompetitive as international tourists may skip India as a destination, instead choosing neighbouring destinations such as Thailand, Malaysia and Singapore where tax rate on hotels in 7%, 7% and 6%, respectively.

The average tax rate on a three night stay at a daily rate of $150 (assuming hotel, food and beverage) is estimated to be $18 (weighted average) in Thailand, $10.50 in Malaysia and $9 in Singapore. In comparison, additional tax expense for a single traveller in India will be $72 more that Thailand, $100 more than Malaysia and $95 more than Singapore.