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Business News/ Companies / News/  Off-season hotel room rates may drop after GST changes

Off-season hotel room rates may drop after GST changes

The GST Council has accepted the hotel industry's demand to levy tax only on the actual room rate

Customers may end up saving 10% compared with the earlier regime, say analysts. Photo: Pradeep Gaur/MintPremium
Customers may end up saving 10% compared with the earlier regime, say analysts. Photo: Pradeep Gaur/Mint

Mumbai: Travellers can look forward to cheaper hotel rooms, especially in off-season periods, with the GST Council granting the industry’s demand to levy tax only on the actual room rate. Under the GST regime so far, even when hotels offered rooms at a discount, tax was charged on the original published room rate, keeping hotel bills high. However, the GST Council has refused to concede to their other demand: to reduce tax rate on rooms. At present, 28% GST is levied on rooms costing above 7,500 a day, and 18% for room rates between 2,500 and 7,500.

Experts said the change clears the ambiguity and ends a year of heartburn for hoteliers forced to charge rates at higher declared rates even when they were giving out the rooms cheaper.

“There has been a lot of issue how the declared tariff is taken. It also comes different for different customers like corporates, senior citizens, etc.," said Pratik Jain, partner and national leader at PwC India.

Jain said the new GST rule would be “hugely beneficial" to customers and from an overall tax policy standpoint, “GST should apply on the invoice value, not on some notional value". Now, customers may end up saving around 10% compared with the previous regime, he added.

According to Raj Rana, chief executive officer (South Asia), Radisson Hotel Group, the overall cost to the customer would come down and improve the affordability of luxury and branded hotels. He said hotel companies have been in a sticky situation after the debut of GST last year as room rates turn out expensive because of the high tax rate.

“For example, if I have suite which is for 10,000, the GST applicable is 28% but if I’m selling it for less than 7,500 the customer still had to pay 28% tax instead of 18%. So, I was willing to cut down price but with tax the suite was still more expensive," Rana said.

The new norm is likely to attract customers to luxury and branded hotels “who otherwise may have gone to less expensive hotels," he added.

However, some hoteliers believe that though the new GST norm would simplify and bring more clarity in terms of business transaction, it is unlikely to stimulate growth.

According to Ankur Bhatia, executive director, Bird Group, a Delhi-based hospitality firm GST rate for luxury hotels should be reduced and brought to a reasonable level to attract more customers. “It is still highly taxed as compared to anywhere in the world right now," Bhatia said.

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Published: 30 Jul 2018, 12:08 AM IST
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