Budget 2018 Podcast: What are the expectations of hospitality industry?

India’s hospitality sector has grown by leaps and bounds over the last decade. Leading players from the sector met finance minister Arun Jaitley before the 2018 budget to table their concerns.

They hope that infrastructure status will finally be granted to the sector, something they’ve believe is long overdue. They would also like see declared tariffs replaced by actual tariff for calculating GST on hotel rooms. Another wish that the sector communicated to the FM is the creation of a fund for small and medium tourism entrepreneurs in India.

The tourism industry is largely underpenetrated and hotels are the main component in travel, say industry sources. They claim the sector in India is taxed three times more under GST than some overseas markets. Conferences are a bulk business and increased taxes impact those as well. The secdtor hpes that GST rates will be brought down and and IGST will be made available to hotels.

According to experts, the assumption is that hotels cannot move outside the border, but the service is consumed by tourists from other states, and they should get the IGST benefits. Most corporates are registered in metros but travel to lesser known destinations. They don't get IGST benefits. This is impacting corporate travel and the Meetings Incentives Conferencing and Exhibitions (MICE) business, , according to industry bodies.

The hospitality sector also hopes that foreign exchange earnings in tourism services are treated as exports and outbound travel and tour services are exempted from GST. Tax benefits to businesses in remote areas, adopting a PPP model for deteriorating public monuments and creating a fund for small and medium tourism entrepreneurs are some of the other suggestions of industry bodies that take care of hospitality and tourism. Hotels create many jobs, they claim, and they are very capital intensive businesses. Granting infrastructure status will ensure hotels get loans of longer tenure which will help reduce the cost of rates, analysts say.

Apart from the demand for infrastructure status, another major concern for the sector is the concept of declared tariff. They hope declared tariff will be replaced by actual tariff as consideration for GST on hotel accommodation, as is the case with other industries. Facilitating micro and small enterprise loans through easier availability and larger outlays could benefit the industry as well as customers, industry insiders say.

Under the current GST structure, hotels and lodges with tariffs below Rs 1000 a day are exempt from the tax, while those with room rates between Rs 1000-2500 are taxed at 12%. Hotels with tariffs ranging from Rs 2500 to 7500 attract 18% tax and a 28% tax slab is applicable for hotels with tariffs above Rs 7500. The threshold for the 28% tax slab was earlier set at room tariffs of Rs 5000 but was revised to Rs 7500 by the GST Council.

It is estimated that India could see close to 100% rise in travelers in the coming five to seven years. The hospitality sector wishes for a rationalisation of the GST for the luxury segment. And a boost to budget hotels by bringing down the GST on room accommodation for rooms up to Rs 7500 to 12%. The step taken by the government to rationalize the GST on F&B was appreciated by the sector.

GST rates for the restaurant industry were brought down to 5% from 18% in November. Owners say the government should consider granting input tax credit benefits to the industry. Eating out did not really get cheaper for customers as some restaurants said they had to hike prices to offset the input credit loss.

In summary, the hospitality sector hopes that the government adopts continues to adopt policies that encourage travelers – like the new visa regime. They also hope the centre enables investment in vital infrastructure and overall ease of business.