Hotel chains expect a GST break to unlock fresh revenue and guest inflows, as the two-day goods and services tax council meeting got underway in New Delhi on September 3, with the overhaul of the tax regime topping the agenda.
The GST council is to take up a proposal to do away with 12 percent and 28 percent slabs and shift items to 5, 18 or 40 percent brackets. And this has the industry hopeful.
The Rs 7,500 threshold for 12 percent GST was fixed eight years ago. Since then, average room rates have already crossed this mark, which means more than half of the industry revenue now falls in the higher tax slab, said Manoj Agarwal, COO, Brigade Hotel Ventures Limited.
With inflation, rising incomes, and a growing middle class, the Rs 7,500 bracket is no longer a luxury benchmark but has effectively become a mid-market threshold, and a revision should be seriously considered, Agarwal said.
"If GST for this category is rationalised to 5 percent, it would immediately boost demand in the fast-growing affordable and mid-scale segment,” he said.
Check-in for growth
Approximately two-thirds of Brigade Hotel's current room inventory falls below the Rs 7,500 average daily rate (ADR) range. "These rooms contribute close to 50 percent to our overall room revenue," he added.
For Ajay Bakaya, who is the chairman of Sarovar Hotels and director of Louvre Hotels India, a GST cut will have a meaningful impact.
Reducing GST to 5 percent on hotel rooms priced at Rs 7,500 or below can result in a 7–10 percent rise in revenue. This growth would be primarily driven by increased occupancy levels, particularly in the mid and upper mid-scale segments, where price sensitivity remains high. “The move would make branded accommodations more competitive, encouraging greater domestic travel and longer stays," Bakaya said.
Approximately 25 percent of his hotel rooms are priced below Rs 7,500. "These rooms contribute about 30–35 percent to our overall revenue. This indicates a strong demand base in this segment and a GST reduction here can have a meaningful impact on overall business performance."
Vikram Doshi, chief financial officer (CFO), Eco Hotels, expects a 10–15 percent increase in revenues, as the lower tax rate will encourage more people to choose organised, eco-friendly stays over unregulated accommodations.
"This means the reduced GST will directly benefit our entire portfolio and positively impact 100 percent of our revenues since all our room tariffs are already under Rs 7,000," he said.
At VITS Hotels, nearly 70 percent of their rooms fall below Rs 7,500 threshold, and a GST rate will drive stronger occupancies, said Dr. Vikram Kamat, Chairman and Managing Director VITS KAMATS Group.
"More so it will help give lot of clarity and reduce the number of tax disputes in the hospitality industry," he added.
Lower tax, higher check-ins
According to Araiya Hotels & Resorts founder-CEO Amruda Nair hotels can expect a 5–7 percent higher occupancy in leisure markets and 3–5 percent in business hubs, translating to an 8–10 percent revenue increase in the Rs 7,500 segment.
"Lowering GST to 5 percent would directly benefit consumers by making quality branded hotels more affordable especially for domestic travellers in Tier-2 and Tier-3 cities, where price elasticity is higher," Bakaya said.
For India to achieve its ambition of welcoming 100 million foreign visitors by 2047, a rational tax regime is indispensable, Agarwal said. Neighbouring countries such as Thailand, Vietnam and Malaysia attract travellers with lower taxes and competitive hospitality packages.
More relief
"India’s branded hotel supply is still very limited, at just about 200,000 rooms across the entire country. To put this in perspective, several international cities individually offer more branded rooms than all of India combined," he said. To meet the demands of rising domestic and global travellers, fast-tracking hotel infrastructure is essential. “For this, rationalisation of GST on construction costs and availability of input tax credits would be critical,” he said.
Currently, developers cannot avail credit on GST paid during hotel construction, which raises the overall project cost and discourages investment. If input credits are allowed, it will bring efficiency into hotel development costs, enhance project viability, and make the sector more attractive for domestic and foreign investors, Agarwal added.
This, in turn, will accelerate the expansion cycle, generate employment and help India bridge the supply-demand gap, he said.
Doshi expects rationaliaation in GST input credit and refund mechanisms, especially for eco-friendly hotels which often face a mismatch where input GST, typically at 12–18 percent, exceeds output GST liability at 5 percent. "Addressing this imbalance would improve cash flow and make it financially viable for more players to invest in sustainable infrastructure," he said
Another issue is the disparity in GST rates for F&B, hotel restaurants are charged at 18 percent, while standalone restaurants attract lower GST. "This creates an uneven playing field. Rationalization here will not only help hotel F&B outlets compete effectively but also give consumers wider and more affordable dining choices,” Agarwal said.
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