Pandemic-hit travel and tourism sector seeks GST rationalisation

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%.

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