Hospitality sector

Are you a planning to savor a meal at your favorite restaurant, escape from your daily routine on a luxury vacation, or say “I do” at the destination wedding of your dreams? Prepare to pay a whole lot more for the experience – and others. Now that the new Goods and Services Tax (GST) is here, luxury in India is pricier than ever.

Here’s why

Category Proposed GST rate Amended GST rate
Hotel 28% on a stay with a total value above Rs. 5,000

18% above Rs. 2,500

12% above Rs. 1,000

0% below Rs. 1,000

28% on a stay with a total value above Rs. 7,500

18% above Rs. 2,500

12% above Rs. 1,000

0% below Rs.1,000

Restaurants 5% at establishments with an annual turnover below Rs. 50 Lacs

12% at other non-air conditioned (AC) restaurants

18% at other AC restaurants

28% at five-star hotel/luxury restaurants

5% at establishments with an annual turnover below Rs. 50 Lacs

12% at other non-AC restaurants

18% at other AC restaurants

18% at five-star hotel/luxury restaurants

Now, say you go to a restaurant with AC but you choose to sit in the garden or on the rooftop, where there is no AC. Will you be charged a reduced tax rate? That’s unclear. However, it’s likely that high-end restaurants with AC will charge the higher GST rate, no matter where you sit.

In some cases, eating at a restaurant with AC may be cheaper than before, given the 18 percent rate. And small food joints and eateries are especially attractive options with a tax of only 5 percent.

Luxury hotel stays, however, are another story with a 28 percent tax rate. Finance Minister Arun Jaitley called the higher threshold of Rs. 7,500, increased from 5,000, a “relief to hotels” facing the high tax rate. However, those in the hospitality industry don’t seem to share the sentiment.

What are industry experts saying?

“GST Council should do away with the contentious 28 percent tax slab for the services industry. There is not much difference between a four-star and a five-star category hotel. But the proposed high tax slab will adversely impact the premium category hotels,” said a hotel manager at a sea-front hotel.

“Food truck businesses will grow as they will be not impacted at all,” said Seshagiri Mantri of Vihar Hospitality. While GST rates may not reduce footfalls at hotels, Mr. Mantri added that, in some cases, owners may have to bear the cost to stay competitive by offering packages that attract guests.

“It will certainly have an adverse effect on the industry, particularly for the mid- and high-category hotels, which will fall under the 18 and 28 percent GST rates. A weekend holiday package for a couple that earlier would cost ₹ 10,000 to ₹ 12,000 will easily go up to ₹ 20,000 now. We are expecting immediate fallout of this with a drop in footfall to hotel restaurants. In the long run, hotels in the city may look at bringing down average room rates,” said Palm Beach general manager and Hotel and Restaurant Association of AP general secretary Sandeep Reddy.

“For restaurants with less than Rs. 75 lakh turnover, they are allowed a composition scheme, which is a simplified form for GST, and they will not have to do separate invoicing,” said Pradeep Jain, owner of Jain Sweets & Bhelpuri House at Kandivali in Mumbai. Jain is also the Food Safety and Standard Authority of India (FSSAI) chairperson of the Association of Indian Hotels and Restaurants (AHAR). “But if you are online (using online delivery service) there you cannot use this composition scheme,” he said, adding that this is only further deterring restaurants.

Conclusion

India’s hospitality industry, at least at the higher end of the spectrum, is extremely vocal about how the new GST rates may negatively affect the tourism sector. They are calling to reduce the 28 percent tax to 18 percent so that they can remain competitive with hotels in other countries. However, small businesses will surely benefit from the new GST regime, and we are – naturally – hearing less from them.

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