India’s hospitality and tourism sector is massive, and as per an estimate, it is expected to reach Rs 32.05 lakh crore by 2028. When the GST was implemented in India, it also brought some very positive changes for the hotel industry. It is safe to assume that the hotel industry has witnessed accelerated growth because of the new tax regime. There are multiple reasons behind this, but the primary reason is that the GST regime has lowered the accommodation price for a certain room category.
So, GST has had positive and negative impacts on the hotel industry. Today, we will discuss in detail how GST has made the hotel industry more lucrative and what can be improved in the GST regime to benefit the industry and the users.
Impact of GST on Hotel Industry in India
Before we discuss the impact of GST on the hotel industry in India, you should know the pre-GST tax structure. Before GST implementation, the tax regime had a tax-on-tax effect, and the end cost was high. All these shortcomings were taken care of by the GST, and let us now look at the impact of the change.
- Tax Credit Input – It is a known fact that the GST has enabled businesses to take advantage of the tax credit. The tax credit can now be infused back into the hotel or used for better operations. The fact that more cash is available at the disposal of businesses is always considered a healthy change.
- Lower Cost to Customer – GST changed the taxes applicable to hotels. Earlier, the tax structure was steep and even the luxury tax was added to the tariff. With the implementation of GST, there was no tax on the hotels where the tariff per night was less than Rs 1000 per night. The tax on hotels between Rs 1001 and Rs 7500 is set at 12%. The tax for rooms with a tariff over Rs 7501 is set at 18%. This helped to lower the cost for the customer. In the 47th GST Council Meeting, the tax rates were changed again. Any room with a tariff up to Rs 7500 was taxed at 12%, and anything over Rs 7500 was taxed at Rs 18%.
- Simplification – GST has also made it easy for the administration to understand and file taxes. Instead of multiple taxes, there is just one tax that they need to file. The procedure has also been simplified, and there are process improvements coming frequently. The change has also made it easy to maintain the invoicing software used by the hotels. Apart from this, the GST has made it easy for users to understand the invoice and ensure they know what they are paying for.
- Technology Burden – One additional thing that came into the picture is the need to upgrade technology. Hotels had to update their billing software, and they also needed to manage it. This did increase the one-time implementation and training cost.
GST and Hotel Industry
One thing that you would notice about the hotel industry is that Indian tax rates are not as competitive as some of their Asian counterparts. The tax rates in these Asian countries are lower than in India. For example, the tax rate in Singapore and Japan are in the range of 7% to 8%. This can be attributed to the fact that these are developed economies, but India needs to stay relevant in the tourism industry. To encourage the tourism and hospitality industry, having a lower tax bracket on some of these services would be better.
Final Take
GST has certainly helped the hotel industry, and having no tax on the rooms with tariffs of up to Rs 1000 was a welcoming change. Things have changed over time, but even with the new rates, the hotel tariffs are cheaper than what they used to be pre-GST. There is a net positive impact on the hotel industry. In addition, GST has even made restaurant services more attractive to the customer. There has been a net reduction in cost for the consumer when it comes to eating out. The new tax system benefits not only the consumers but also the hoteliers. If you are in the hotel industry, you can also use ready-made GST invoicing solutions available in the market.
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