Hospitality Sector subject to four-tier GST rates of 5-28%: ICRA

The GoI on May 19, 2017 announced a four-tier structure of 5, 12, 18 and 28% for various categories in the hospitality industry.

May 22, 2017 03:05 IST India Infoline News Service

The GoI on May 19, 2017 announced a four-tier structure of 5, 12, 18 and 28% for various categories in the hospitality industry.
Under the pre-GST regime, room revenues attract luxury taxes and service tax.  Luxury tax, being a state subject, varies from state to state, and is computed using different methods and rates. While certain states computed taxes on actual tariff others use the rack rates. Post GST, these vagaries would get  smoothened with all hotels across the country falling into four buckets depending on their tariffs: GST exempt for hotels charging less than Rs. 1,000; 12% GST for hotels with tariffs of Rs. 1,000-2,500; 18% on tariffs of Rs. 2,500-5,000 and 28% on tariffs greater than Rs.5,000.
 
Impact of GST on cost of hotel stay would depend on the current tax regime the hotel’s location subjects it to; presently rates vary from 19% to over 25% depending on the State and irrespective of the rack rate/tariff. For the premium category (above Rs. 5,000), the direct impact of GST is expected to be moderate while stay in economy and midscale hotels (Rs. 1,000-5,000) is expected to become cheaper. Impact on dining out is expected to be largely neutral to marginally positive, as restaurants pass on benefits of ~1%.
 
Additionally, benefits under GST would trickle in from availing seamless input-tax credit (on services and local taxes) which will lower the overall cost for hotels and restaurants.
Tax slabs Categories
Exempt
»        Hotels and lodges with tariff less than Rs. 1,000 per day, in line with existing tax rates
»        Second-class rail travel
5% »        AC railway travel and economy class Air Transport »        Restaurants with Rs. 50 lakh or below turnover.
12% »        Non-AC restaurants and Business class air travel
»        Hotels with tariffs Rs. 1,000-2,500
18% »        Air conditioned restaurants with liquor license
»        Hotels with tariffs Rs. 2,500-5,000
28% »        Hotels, resorts and lodges with tariffs above Rs. 5,000 »        Entertainment items like gambling, golf courses and Cinemas will also attract this highest slab
Source: ICRA research

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