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Pandemic-hit travel and tourism sector seeks GST rationalisation

Lower taxes may help boost domestic travel, but the lack of a uniform policy on inter-state movement remains a hurdle, adding to the woes of financially strapped hospitality companies

June 18, 2021 / 03:44 PM IST
Traveler tour accessories maps, passport items (Source: ShutterStock)

Traveler tour accessories maps, passport items (Source: ShutterStock)

Travel and tourism companies, struggling with the impact of restrictions imposed on account of COVID-19, are hoping for some relief from the government in the form of a cut in the goods and services tax rate to a flat 5 percent, easier liquidity norms and softer loan repayment terms.

Executives said that with the coronavirus pandemic having hit their sector hard, the current rates of GST, which can go up to 18 percent depending on the size of operations, are not feasible.

The Indian Association of Tour Operators, a grouping of over 1,600 members including travel agents, hotels, airlines and transport operators, had written to the Union government asking for a rationalisation of GST rates. However, the issue was not discussed at the 44th GST Council meeting held on June 12, when rates for various COVID-related medical supplies were reduced.

For hotels and airlines, GST depends on the tariffs. A room that costs upwards of Rs 7,500 daily attracts GST of 18%, while a tariff between Rs 1,000 and Rs 7,500 is subject to 12% tax. GST isn’t applicable if the daily room rate is less than Rs 1,000.

Restaurants in hotels are subject to 18% GST if the daily room tariff is above Rs 7,500. If it’s less, GST stands at 5%. For airlines, business class tickets come with 12% GST and economy fares attract 5%.


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Officials and executives from the sector say the various slabs should be scrapped and a flat 5% rate should be introduced in the hospitality sector, at least until the end of the pandemic.

However, some experts are of the view that vaccinations would be a sure-shot way of getting business moving in the tourism sector and are not sure if lower taxes alone would help.

“Being an indirect tax, GST is passed on to the ultimate consumer, bundled with the price of the services,” MS Mani, a senior director with Deloitte India, told Moneycontrol. “Any move to rationalise the tax rates can only be positive, but it is difficult to say whether that alone can improve business for them.”

Sudhir Patil, managing director of Veena World, a company that organises tours and customised holidays, said rationalising GST will make travel more affordable for customers.

“They should look at a flat 5 percent,” Patil said. “At least for a specific period.”

While a lower tax rate may spur domestic travel, international travel may still remain out of bounds.

“We are not expecting international travel to resume any time soon. The hope is that domestic tourism picks up over the next few months,” said Mumbai-based Patil.

There are expectations that pent-up travel demand will kick in shortly. A quick trip to a hill station or beach resort after a stressful exam season or a luxury resort stay for tired corporate executives is what the sector expects. But even in domestic travel, there is no uniformity in policies.

“Maharashtra, for example, insists on producing RT-PCR certificates, whereas many other states don’t,” said Patil. “There seems to be no communication between states in this regard. No one is talking to each other, trying to come up with solutions. As it is, the tourism department is the most neglected department in most states in India.”

The authorities have taken some steps to support the sector. In March, the government expanded the scope of the Emergency Credit Line Guarantee Scheme to cover entities in hospitality, travel & tourism, leisure and sporting.

The Reserve Bank of India extended a Rs 15,000 crore liquidity window to support the travel and tourism sector on June 4. The scheme allows banks to offer loans to hotels and restaurants, travel agents and tour operators.

Rating company ICRA has said the real impact of this measure remains to be seen. About 70% of the hospitality entities are already on a negative credit outlook, compared with 92% of the entities with a stable outlook in January 2020.

The Federation of Hotel & Restaurant Associations of India said that while liquidity infusion will provide cash-strapped hospitality businesses some impetus, the duration of the scheme should be increased to at least five years from the three years stated.

“The government should ensure that the benefits of the relief package reach the grass roots,” said R Sisupalan, managing director of the 39-room Sagara Beach Resort in Kovalam. “We hoteliers have taken loans from state financial institutions at 12 percent interest rates. Even if there is a delay of one month in repayment, we are slapped with penal interest that takes it to 14 percent. We are requesting the states to grant loans to us at 7 percent.”

He said the Centre should consider giving the sector an interest-free moratorium until the pandemic ends.

“I’m paying Rs 1.5 lakh every month just towards my fixed electricity charges. That too when I have no revenue. Where’s the justice here?” he asked.

This is the concluding part of a two-part series. Read part one here
Darlington Jose Hector is a Senior Journalist
first published: Jun 18, 2021 03:33 pm

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