The Impact Of GST on Hospitality Industry


Hospitality industry in India, a big contributor to the country’s economic growth is on high growth trajectory and is expected to reach Rs 2,796.9 thousand crore by 2022*. The industry also contributes significantly to employment, FDI and Foreign exchange.

However,the hospitality industry which is already reeling under rising costs of basic commodities, labour and the recent liquor ban on highway by the Supreme Court. 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 visa vie our competitors in the international market that have much lower taxation.

The high rate of 28 per cent GST for hotels charging room rentals above ₹5,000. Before GST, the luxury and service tax was at about 19 per cent and this has now gone up to 28 per cent. While GST is a gross tax and there is going to be input credit, the cost for hotel companies goes up by almost 10 per cent and there should be an absolute rate tax.

The GST council has pegged GST for AC eateries and those with liquor licence at 18 per cent, non-air-conditioned restaurants at 12 per cent, hotels charging room rentals between ₹1,000 and ₹2,500 at 12 per cent, ₹2,500 and ₹5,000 at 18 per cent and above ₹5,000 at 28 per cent.

Here the government also fails to understand the Ac eateries  are  no longer a luxury , specially in the costal areas of the country where the humidity level is very high, on such enhancing the tax will definitely hamper the business.


Dynamic pricing

Considering there is dynamic pricing in the hotel industry like in the case of airlines depending on demand and supply, having a flat slab across the industry is what is going to work, say industry players. “There should beflat tax as room rates are dynamic and based on demand, and the cost of real estate and labour cost varies across the country. There is already high competition in the industry and these slabs create a regulatory measure, which is not needed. Tourism will be impacted and measures like e-visa will get negated if room rentals above ₹5,000 have 28 per cent GST which will have tourists going to  the neigbouring country like Sri Lanka rather than Goa,’’ .

Effect On International tourism

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

“One of the biggest hurdles for the Indian hospitality and tourism industry, in terms of attracting international tourists is that of not having a competitive tax structure. A country as small as Singapore witnesses 10.90 million tourist arrivals against 6.31 million in India. Nations like Malaysia and Thailand attracted 24.7 million and 19.09 million tourists in 2014 and earned foreign exchange of $18,299 million and $26,256 million. In contrast, India managed to earn a meagre $94 million,”

Advantage Budget Hotels;

Hotels and lodges that charge INR 1000 a day or less are exempted from the GST, those charging  INR 1,000 to INR 2,500 will be taxed at 12 pc ,which is a slight reduction from the current rate of 13-14 pc. Those with a tariff between INR 2,500 to INR 5,000 will have to pay 18 pc tax. Similarly, small restaurants with an annual turnover of less than INR 50 lakh will be taxed at 5 pc.

The lower rate for budget hotels “will ensure that the industry’s quality upgrade continues while delivering standardised accommodation to millions of middle-class travelers.

Negative Impact

Pointing out the importance that hotels and restaurants have on tourism, industry experts have commented that they should have qualified for lower tax slabs. At best there should be one or two slabs of either 12 per cent or 18 per cent to create a level playing field. If single slabs can be created for categories like cars and air conditioners, why can’t hotel rooms get clubbed under a single rate As food and tourism is an integral part of the Indian experience, the burden that the revised rates might have on the end consumer might also hamper the industry and is being seen in a negative light by many insiders.



Sattyen  Bhoyar


Hotel And Restautant Jobs


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