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Impact of GST on hotels, restaurants and tourism industries

The GST rates for hotels, restaurants and tourism industry were finalized based on the tariffs and turnovers. The rates drew mixed reactions across the industry.The budget hotels have been restricted to the lower GST rates, or nil in the case of those hotels charging less than Rs.1000/- a day. For those hotels charging more than Rs.5000/- a day will have to pay 28% GST. This means that the luxury and five star hotels will have to pay a 28% tax, which is much higher than the current tax rates. This move will have an impact on the end consumers and also puts the middle level hotels under the same category. Not all hotels charging more than Rs. 5000/- can be categorized as a luxury hotel. This rate will have an impact on the entire middle level and premium level hotels. 

The higher tax slab for luxury hotels is a dampener for the industry and if the restaurant services in the hotels are also taxed at 28%, the sentiments will dampen further. Experts across the industry are of the opinion that all hotels and restaurants should have qualified for the lower rate of tax since they are important employment generators across the economy. Members of the Association are not happy with the tax slabs and consider it as a dampener for the business. Since the aim was to protect the smaller players with lower burden, it is seen as premium players and restaurants are being incentivized to show less turnover.

The hotels with a room rate between Rs.1000- Rs.2500 will be taxed at 12%, the hotels with a room rate between Rs.2500-Rs.5000 will be taxed at 18% and above Rs.5000 will be at 28%. Similarly, small restaurants with a turnover of less than Rs.50 lakh will be taxed at 5% and other non AC restaurants will be taxed at 12%, while the AC restaurants will be taxed at 18%. The owners of budget hotels are happy with the tax slabs and expect a quality upgrade while delivering standardized accommodation for millions of middle class travellers. It is also expected that there will job creation at the middle level.

Another expert in the industry mentioned that there was no need for the classification of hotels as pure luxury as it does not make sense. The heavy taxation on the hospitality industry has dampened the spirits of many and led to a major disappointment across the sector. Restaurants and hotels were expecting an impetus because of the job creation ability and the higher expected growth of the industry in the coming periods. The slab of 28% is seen as very high across the industry and it has led many premium hotels into trouble. There could also remain a risk of non registration of the hotels or restaurants due to the higher rate of taxes applicable to them. It would be interesting to see the impact of GST over the entire tourism and hospitality industry  in the coming period.

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