GST: Hospitality Sector Remains Slightly Apprehensive

Sajan Varghese on Goods and Services Tax (GST)

The much-awaited Goods and Services Tax (GST) regime initially contained some unpalatable proposals for the hospitality sector in the form of ‘unheard-of’ tariff which could have paralysed it. But, with the frantic industry approaching the Centre, the GST Council has recently come out with revised rates offering some solace. Still, the new tax rates for hotel rooms are multi-tiered. Rooms priced above Rs. 7,500 have been slapped the highest tax slab of 28 per cent while those in the range of Rs. 2,500 and Rs. 7,500 will attract GST rate of 18 per cent. Rooms priced between Rs. 1000 and Rs. 2,500 will be charged 12 per cent while those having a price tag of less than Rs. 1,000 have been exempted. Along with the revision in the slabs for room tariffs, the tax rate for air-conditioned restaurants, including restaurants in five-star hotels, has been fixed at 18 per cent.

No doubt, GST has ensured tariff parity across the country, ushering in a level playing field for the tourism and hospitality stakeholders. However, the proposed high GST tariffs may deter our inbound tourists who are already being wooed by neighbouring countries offering attractive packages. While these countries charge 5-12 per cent GST or equivalent tax for tourists, hotels in India would be levying 18 and 28 per cent GST.

The high GST tariffs may deter inbound tourists who are being wooed by neighbouring countries offering attractive packages, says Sajan Varghese

That was why the Federation of Hotel & Restaurant Associations of India (FHRAI) and Federation of Associations in Indian Tourism and Hospitality (FAITH) had requested the Government to implement a uniform hospitality GST at 12 per cent across the country for the purpose of having a ‘one nation, one hospitality tax.’

For instance, let us consider the tax rates in Thailand, Singapore and Malaysia. Thailand has a consolidated indirect tax rate of 7 per cent for hotels and 17.7 per cent for restaurants. In Singapore, it is 7 per cent each for hotels and restaurants. Malaysia has a VAT of 6 per cent for hotels and restaurants.

A three-day stay by a foreign tourist at a daily rate of $150 will be taxed per night in India at $42 (not including cesses), $18 in Thailand (weighted average), $10.50 in Malaysia and $9 in Singapore. This means a total stay of three nights for one person in India now becomes expensive by $72 against Thailand, by $95 against Singapore and by $100 against Malaysia (according to figures published by FAITH).

This difference will get compounded when we bid for global conferences and events, and when large tour groups come to India. Consider a conference of 100 people and India post GST becomes $7,200 more expensive than Thailand, $9,500 than Singapore and $10,000 more costly than Malaysia. This difference will further widen if the tourists prefer to stay longer. These travellers are now most likely to give India a miss. It may be noted that Thailand already receives 26 million foreign tourists and $42 billion in foreign exchange. Malaysia’s FTA is around 25 million with a forex earning of $22 billion. For Singapore, the corresponding figures are 12 million and $20 billion. But for India, the figures are less than 9 million and $21 billion respectively.

Rashmi Verma IAS, Secretary, India Tourism, in a letter to her counterpart in the Finance Ministry, had requested that either the tax rate be brought down to 18 per cent or the threshold for a 28 per cent GST be increased to rooms with tariff of more than Rs. 10,000 per night. She had clearly pointed out that GST rate of 28 per cent was going to hurt the sector.

Since GST excludes liquor, tourists have to bear the burden of whimsical tax regimes followed by different states. For instance, Kerala levies a whopping 150+ per cent (including cess) on liquor. It would have been ideal for the business if liquor was also brought under the ambit of the GST. 

(The author is Managing Director, SAJ Hotels & Resorts)