Are Hotels Overpaying Taxes?

Introduction

As we all are aware Hotel Industry is one of the dominating Industries in India Having Market size(2024) of 247.31 Billion USD & which will be around 475.37 Billion USD by 2029 with CAGR of 13.96%. Pre-GST Hotel industry need to pay municipal taxes (VAT, luxury tax, and service tax) under the previous VAT regime. As a focus on the disparity between the 18% GST in star hotels and the 5% GST in smaller restaurants. As under the hotel where the room tariff exceeded Rs.1,000, was liable for service tax at 15% But due to cascading effects of VAT regime where the end consumer paid a tax on tax, increased the end cost. Hoteliers and hospitality businesses did not get any input tax credit on the taxes they paid, as central taxes like service tax, could not be set off against state taxes (VAT) and vice-versa.

Hotel Industries under Goods & Service Tax

As Currently a debate on social media platforms has sparked a heated discussion about the application of GST rates in restaurants, with a particular Goods & Service Tax benefits of uniform tax rates, and easy and better utilization of input tax credit. As the final cost toregime Hotel industries has got the end user decreases, the industry attracts more overseas tourists than before.

This ideally results in many pros which could help the industry growth in long run. Lets look at the GST rates Based on room tariff.

Impact of GST on Hospitality Industry

As whether the rates are fair? Compare to taxes before GST let’s talk about some of the pros & cons of implementation of GST on said industry

PROS

• Ease of Administration: As a reduction in administrative processes and additional opportunities to simplify the taxation process will result from the elimination of various other taxes by the GST
• Clarity to customers: As it is difficult to tell the difference between VAT & Service Tax to the customer as he can see only one tax charged on the purchase
• Input Tax Credit: Availability of Input Tax credit will reduce the cascading effects of pre GST taxes which will decrease the end user cost.

CONS

• Increased Tech Burden: Under GST specific rules about how each industry must manage its accounts and file returns, but it will force businesses to become tech-savvy, increasing compliance costs and technological burdens
• Fairness of tax System: Disparity between the 18% GST in star hotels and the 5% GST in smaller restaurants will have perceived burden on middle class