Higher GST slab to adversely hit budget hotels in Gujarat

GNN | May 26, 2017, 1:00 PM IST|

AHMEDABAD: With the Government of India readying to levy the Goods & Services Tax (GST) from July 1, hoteliers across Gujarat are a worried lot. Hoteliers want budget hotels to be put in the 5% GST slab as small budget hotels, very popular across customer categories and typically with tariffs below Rs2,000/room/night, will be adversely affected if budget hotels are put in the higher tax bracket of 18% slab.
These budget hotels with tariffs below Rs2,000/room/night presently attract 13% tax in total, including service tax and luxury tax. For those below Rs1000, service tax of 9% is not levied.
"If budget hotels are put in slabs above the present tax rate, the tax liability of hotels will rise. Hoteliers will have no option but to pass on the burden to consumers and budget hotels will consequently get more expensive. Considering the huge size of this segment, this will significantly affect the market," Sajjan Purohit, the owner of a city-based budget hotel told TOI.
Industry stakeholders estimate that budget hotels account for 80% of the hotel market in the state. Currently, service tax is applicable only on hotels whose tariffs are Rs1000 and above. These hotels will be adversely affected by a higher tax liability, hoteliers said. Hoteliers indicate that tariffs for such rooms will rise by 10-15% to compensate for the higher tax after GST.
Vadodara hotelier Narendra Adwani who owns and operates an 18-room budget hotel in the central Gujarat city told ToI, "Currently there is no service tax for rooms below Rs1000/day day but GST will cover such rooms too, leading to an increase in costs. We will have to recover it from customers."
Already hotels are burdened with multiple taxes including VAT, luxury tax and service tax under the indirect tax administration. The hotel industry welcomes a uniform tax regime but they expect budget hotels to be kept in the 5% slab.
According to Sanat Reliya, Vice President of South Gujarat Hotel and Restaurant Association (SHARA), “A composite scheme of 5% GST will be beneficial for small budget hotels. In this scheme, we will not charge our guests and will not take any input credit either."