‘GST rates will impact the hospitality sector’

Issue:

Recent events, such as liquor ban on highways and some provisions in the GST suggest the hospitality business has been extended a second-fiddle treatment.

Importance of the travel and tourism industry:

Generating over $200 billion in revenues and employing over 40 million people in 2016, the travel and tourism industry contributed almost 10 per cent to India’s GDP. Prime Minister Modi has repeatedly spoken about tourism being an intrinsic part of his vision. ‘Make in India’ and the provision for e-visas were steps in the right direction. One almost began to believe that the travel and tourism had finally begun to receive the attention it deserved.

No easy business:

* Hotel projects tend to be highly capital intensive, require a long gestation period and are frequently plagued by tribulations such as a very high cost of borrowing, relatively short repayment schedules as well as a maze of licenses, permits and approvals that are often marred by red-tapism and bureaucracy.

Hotel performances are instantly impacted by changing socio-economic and political factors and the business is inherently cyclical from a performance stand-point. The brave hearts who invest in this business aren’t necessarily signing up for an easy ride to begin with.

Impact of GST:

The matter of GST is now slated to further add to the sector’s woes. Hotels with a realised rate of Rs.5,000 and above shall be required to levy 28 per cent GST on the bill. The argument is that this level of spend points to ‘luxury’. The hotel sector was traditionally marred with a variety of taxes and these varied from State to State.

Wrong methods

The basic premise of creating slabs for hotels (No tax below Rs.1,000, 12 per cent GST between Rs.1,001 and Rs.2,500 and 18 per cent GST between Rs.2,501 and Rs.5,000) is flawed.

India has about 120,000 organised, branded hotel rooms. About 65 per cent of this inventory averaged a realised room rate of Rs.5,000 or more in 2016.

Essentially, two-thirds of the branded supply in India is now left with no option but to brace itself for tough times ahead. Hotels may be forced to reduce their room rates in a bid to woo guests, who will most certainly not be keen on paying an extra 10 per cent to 16 per cent tax on their room rate.

Besides, treating the need for a lodging accommodation (a roof over your head when travelling) as a luxury doesn’t seem to make sense. The Government’s inability to view the hotel sector as a provider of infrastructure rather a source of luxury is at the root of the issue.

Over 70 per cent of hotel accommodation is presently consumed by corporate or business travellers. Hotel rooms are thus a “need” and not a “luxury”.

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