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Franchise Apr, 18 2017

How GST will impact the Big Biz of hotel industry

Food is now going to be charged at 5% which may come as an advantage in most states

By Saddam Zaroo

After Lok Sabha passed GST Bill, one of the industries which will be affected majorly is Hospitality Industry. Experts from the industry shares that the implementation of GST will provide an add factor on to the hospitality sector by reducing costs for customers, harmonizing taxes, and reducing business transaction costs.

There is no doubt that GST is set to impact the hotel industry, as per my assumption it's going to be mainly negative. A GST of 18% has been levied on room rent; this is much higher than the previous tax regime in most states, on most hotel star categories. In fact in my state of Jammu & Kashmir it will be interesting to know how the state shall manage its 0% tax relaxation policy on room rent. Will this continue or will it be impacted once the GST regime comes into the state later this year.

It is going to reduce the spending power of the domestic tourist who will now have to spend a higher price on travel with in India. It's also going to give good competition to local industry on international level, South Asian countries generally follow a GST type regime ranging from 4 to 7%, therefore it is not only going to impact the inbound foreign tourist but also will make it more competitive and difficult for the local industry to prevent the local tourist from out bound travel.

A foreign tourist planning a trip across Asia may entirely skip India or spend fewer days in our country on account of these perceived high room rates because there is no refund policy to foreigners as enjoyed in many countries.

Some Pros of GST:

  1. Service will be taken care of : It will help in improving the quality of services as there will be just one tax to calculate, the checking out process at hotels and restaurants will now become easier – another perk that the hospitality industry can brag about.
  2. Management Ease: As with only one tax to compute the bill, time will be saved.
  3. Ease for Customer understanding: It is still very difficult to differentiate between a Value Added Tax (VAT) and an entertainment tax for the customers. However, under the GST regime customers will see only a single charge on their bill and it would give them a clear picture of the tax they are paying.
  4. Food will be the focus: Food is now going to be charged at 5% which may come as an advantage in most states

Cons of GST Bill:

1. Increase in Costs of services: A GST of 18% has been levied on room rent; this is much higher than the previous tax regime in most states, on most hotel star categories. Even with GST charged at 18%, there is minimal cost reduction in both cases.

2. Lack of Equality among other Asian Countries: As India becomes an even bigger player in the global hospitality and tourism industry; we need services to be at par with global rates. Our Asian neighbors such as Japan and Singapore have very low tax rates for their hospitality sector (8% and 7% respectively) which is an important reason for them ranking high on tourist wish lists.

                      About the Author: Saddam Zaroo is a Young Hospitality Entrepreneur & M.D. Royal Khazir Hotels & Resorts.                         He has been recently appointed as the Youngest Vice Chairman for Confederation of Indian Industry (CII)                               J& K State Council. Saddam also hold up a one of its kind Kashmir Store in Hotel J.W. Marriot, Juhu as "Khazir”.




Related: Why food court concepts are shining in India

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