The Hotel and Restaurant Association (Western India) (HRAWI) has urged the government to reconsider the recent Goods and Services Tax (GST) reforms for the hospitality sector, proposing a balanced approach that safeguards both consumer benefits and industry sustainability.
HRAWI, which represents restaurants and hotels up to the five-star deluxe category, submitted a detailed representation to the Prime Minister seeking urgent rationalisation of the newly announced GST structure. The move comes after the government reduced the tax slab on room rates up to Rs 7,500 from 12% with ITC to 5% without ITC.
"To balance consumer benefits with industry sustainability, we are proposing either 5% GST with 50% ITC benefit, similar to banking institutions, or 18% GST with full ITC on two-thirds of the value for rooms under Rs 7,500," said Dilip Kothari, tax advisor, HRAWI.
HRAWI also recommended delinking food and beverage (F&B) services from room tariffs, allowing F&B providers to choose between 5% GST without ITC or 18% GST with full ITC. Additionally, it proposed making the composition scheme mandatory for F&B services with an annual turnover of upto Rs 5 crore.
While appreciating the government's effort to simplify GST and offer lower rates to consumers, HRAWI stressed that the absence of ITC reverses progress towards a seamless tax-credit system. The association highlighted that the lack of ITC increases operational costs, raising the cost of setting up new hotels by at least 10%, as credits are unavailable for essential inputs like equipment, linen and crockery. Hotels on leased premises are particularly affected, as rent accounts for 20-25% of operational costs.
"This change could inflate costs for budget and mid-scale hotels, making accommodation less competitive compared to neighbouring countries," HRAWI President said.
The hospitality sector contributes 5.8% to India's GDP and supports over 32 million jobs. HRAWI emphasized that rationalising GST is crucial not only for industry growth but also for inclusive economic development.
"We urge the government to engage in constructive dialogue with industry stakeholders. HRAWI remains committed to collaborating on a tax framework that promotes growth, innovation and affordability in the hospitality sector," the association added.
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