The Goods and Services Tax Council on Friday finalised different GST rates for hotels and restaurants based on their tariffs and turnover, drawing mixed reactions from the industry.
While budget hotels will attract low — or even nil in the case of those charging less than Rs 1,000 a day for rooms — GST rates, those charging Rs 5,000 and more room tariff per day will have to pay 28 per cent, upsetting many industry experts.
Restaurants in such hotels, too, will have to pay 28 per cent upsetting many industry experts. Restaurants in such hotels, too, will have to pay 28 per cent GST.
Levying 28 per cent on luxury and five-star hotels is myopic,” said Achin Khanna, managing director, consulting and valuation practice, at consulting firm HVS.
He said the move will impact end consumers. Hotels charging more than Rs 5,000 do not automatically mean they are a luxury hotel or catering to want based travel, Khanna said.
Suresh Nair, a partner at EY’s indirect tax practice, said high tax slab for premium hotels is a dampener for the industry as effective rate for these hotels was not that much previously.
Sentiments will dampen further if restaurant services in these hotels are also taxed at 28 per cent, he said.
Experts said all hotels and restaurants should have qualified for lower tax slabs as they are critical employment generators for the economy and critical for tourism.
The government has not realised the importance of providing impetus to hospitality and tourism sectors, which are one of the highest employment generating sectors, said Riyaaz Amlani, president of National Restaurant Association of India.
It is not fully invested in maximising the potential of these sectors.
While we appreciate the move of shielding the smaller players in the sector with a lower tax bracket, why are restaurants being incentivised to show less turnover? The GST Council has fixed a graded tax structure for hotels and restaurants.
Hotels and lodges will a tariff below Rs 1,000 a day will be exempted from GST, while those with a room rate of between Rs 1,000-Rs 2,500 will be taxed at 12 per cent and those with a tariff of Rs 2,500-Rs 5,000 will attract 18 per cent tax.
Likewise, small restaurants with an annual turnover of less than Rs 50 lakh will be taxed at 5 per cent and other non-air-conditioned restaurants will be taxed at 12 per cent, while air-conditioned restaurants will be taxed at 18 per cent.
Ritesh Agarwal, the founder of budget hotel aggregator OYO Rooms, said lower tax rate for budget hotels 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 by higher tax rates, he said.
Aashish Gupta, the consulting CEO of hospitality industry body FAITH, said the GST Council failed to “make a correction” in a sector that creates a lot of jobs.
There was no need to classify certain hotels as pure luxury, he said.
The analogy of comparing them to racing events and gambling does not make sense as there is no parallel between the former and the latter in terms of job creation, economic growth and foreign exchange earnings.
Amlani of National Restaurant Association of India said heavy taxation and regulation would only lead to leakages in government revenues.
People are avoiding taxation and regulation by just not registering, he said.
Restaurants and hotels should be given impetus as they provide a lot of jobs and are critical for tourism to grow.