Introduction

The hotel industry holds a dominant position in India, boasting a market size projected to reach 247.31 Billion USD in 2024, with an estimated growth to 475.37 Billion USD by 2029, demonstrating a CAGR of 13.96%. Pre-GST, hotels were subject to municipal taxes such as VAT, luxury tax, and service tax. The disparity between the 18% GST rate in star hotels and the 5% rate in smaller restaurants has been a focal point of discussion. Previously, hotels with room tariffs exceeding Rs. 1,000 were liable for service tax at 15%, contributing to cascading effects in the VAT regime, where end consumers bore taxes on taxes, ultimately increasing costs. Furthermore, hoteliers and hospitality businesses could not avail input tax credit on taxes paid, as central taxes like service tax could not be offset against state taxes (VAT), and vice versa.

Impact of GST on Hospitality Industry

The implementation of GST has sparked a debate on social media platforms, particularly regarding the application of GST rates in restaurants. The transition to GST has brought about uniform tax rates and enhanced utilization of input tax credit, resulting in reduced end-user costs for the hotel industry and attracting more overseas tourists. However, the fairness of GST rates compared to pre-GST taxes remains a topic of discussion.

Pros

The adoption of GST has led to ease of administration by simplifying taxation processes and reducing administrative burdens associated with the elimination of various other taxes. Clarity to customers has improved, as the distinction between VAT and service tax is no longer visible to the customer, who now sees only one tax charged on their purchases. The availability of input tax credit has mitigated the cascading effects of pre-GST taxes, ultimately reducing end-user costs.

Cons

The implementation of GST has increased the technological burden on businesses, requiring compliance with specific rules on accounting and return filing, leading to higher compliance costs and technological challenges. There is a perceived disparity between the 18% GST rate in star hotels and the 5% rate in smaller restaurants, which may impose a burden on the middle class.

Conclusion

The Indian hospitality industry, with its projected massive growth, finds itself at an interesting juncture with GST. While GST has simplified tax processes, improved transparency, and potentially reduced costs for consumers, challenges remain. The debate surrounding the 18% GST rate on star hotels versus the 5% rate for smaller restaurants raises questions about fairness. Moving forward, a crucial discussion lies in determining whether the current GST structure fosters optimal growth for the industry while balancing revenue generation with affordability for both businesses and consumers.