HOSPITALITY
Booking a ~5,000-plus hotel room? Be ready to pay more
SHUBHAM PARASHAR
Mumbai, 19 May
Staying in luxury hotels with tariffs above ~5,000
will cost you more as the service tax under the
new GST regime has been set at 28 per cent.
Experts consider this a regressive move, espe-
cially at a time when occupancy levels in metros
and tier-II cities are on the upswing.
On an average, effective tax rate on hotels in
Maharashtra are between 19 per cent and 20.5
per cent. This subsumes nine per cent service tax
and 10 per cent luxury tax for hotels in general
and 10.5 per cent service tax and 10 per cent lux-
ury tax for hotels with banquet facilities. A dif-
ference of 800-900 basis points in tax level is
demoralising, said Achin Khanna, tax expert
at consulting firm HVS.
Under the new regime, hotels will fall under
tax slabs on tariff basis and not by category. In
tier-II cities, hotels that do not comply to 5-star
classification also charge high tariffs. Slabs are
by rate and not star classification. Even so,
~5,000 does not mean luxury. Levying 28 per
cent is unfair, Khanna said. A way for the hote-
liers is to keep their tariffs below ~5,000, where
they can be taxed at 18 per cent. However, they Hotels with tariffs between ~2,500 and ~5,000
will be raising additional revenue by levying will fall under the 18 per cent tax slab and those
surplus charges such as parking charge and with tariffs between ~1,000 and ~2,500 will be
room service charge. charged at 12 per cent. Ritesh Agarwal, founder
Taxpayers and customers are the ones & CEO, OYO rooms said, We welcome this step
who will bear the cost. Moreover, such a move by the government. A lower tax rate for budget
is also a deterrent for hotel owners who were hotels will ensure that the industry's quality
planning to expand after increase in upgrade continues while delivering
occupancy level in FY16; investments The real good standardised accommodation to mil-
in leisure markets will be the hardest news is for lions of middle-class travellers. Hotels
hit, say experts. small hotels are the single-biggest contributor to
The restaurants in luxury hotels will with tariffs the tourism industry, which accounts
also fall under the same tax slab, which below ~1,000, for 7.5 per cent of the GDP. The move
makes even dining out expensive. which have will boost revenue from the travel and
Consumption pattern of restaurants been exempted tourism sector, going ahead.
in luxury hotels falling under the new Sharat Dhall, COO, Yatra.com, said,
tax regime may change, customers may choose Overall this seems like a good move for the sec-
to stay in luxury hotels but may dine outside tor and should help the growth momentum con-
where they can save on their additional expens- tinue. Budget hotels for the aam aadmi have
es that increases due to rise in tax, said Suresh been kept insulated from any increases in tariffs,
Nair, tax expert, E&Y. There is also confusion while the luxury segment might see an increase
about the tax slab of restaurants that are in due to the GST rates announced.
hotels offering tariffs between ~2,500 and ~5,000 Amidst divergent taxes for luxury and
and also above ~5,000. budget hotels, the real good news is for
Where luxury hotels are worse affected by small hotels with tariffs below ~1,000, which
the move, budget hotels have a reason to cheer. have been exempted.