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Budget 2018: 'GST has made hotel rooms expensive; levy tax on actual tariff'

Sidharth Gupta     January 19, 2018

Despite the short-term hurdles presented by demontisation and GST, the travel and tourism industry continues to be bullish on future growth and opportunities. The travel companies have just scratched the surface and there is a long journey ahead to offer great travel experiences to domestic and global travelers in India. The rising focus on the potential of the economy segment has unlocked a whole new spectrum of opportunities. Favourable policies and certain modifications in recently implemented national initiatives can further augment the performance of the Indian tourism industry. This will also result in increased contribution towards the national GDP, which is currently at 9.6%.

From a business point of view, GST is a progressive step towards reforming India's tax structure, and is aimed at increasing the efficiency in logistics, regulating the unorganised sector, and defining the treatment for e-commerce players. However, in its current form, in certain cases, customers actually end up paying a higher percentage of tax than they should. GST levied at hotels is calculated on the declared room tariff, as opposed to the actual tariff being paid by the customer while booking. Given the nature of the business, a hotel inventory is dynamically priced, and room tariff varies, depending on the season, demand, and location, besides other variable factors.

This means that, for instance, post discount, a room in the 18% tax slab may fall under the 12% slab, but the guests end up paying 18% for the same room, instead of 12%. The Finance Minister should levy GST on the actual tariff and not the declared tariff at hotels. GST has certainly brought down the room tariff, and by taking this suggestion into consideration, it can further add value by allowing hoteliers to offer quality services at even lower cost, to the guests.

Our second suggestion is aimed at making the hospitality business more attractive for small businessmen, and thereby attracting more investment into this space. We propose the creation of attractively priced loan products for this industry to facilitate construction of new budget hotels, as well as renovation of existing ones. In addition to generating tourism revenue, hotels are also a source of employment for the local communities they operate in and around. Moreover, these hotels also help upskill the labour class in smaller cities. In particular, small budget hotels can help realise these benefits in a geographically dispersed manner, that is, for remote and small cities as well, and not just for metros. Loan products - offered by public and private sector banks alike - tailor made for the requirements of small hotel owners, can help with employment creation and development of smaller cities, in addition to providing a boost to the overall tourism sector. Thus, these measures, along with acting as an incentive for prospective domestic players to enter the sector, will also catalyse their progress, resulting in the overall
growth of the economy.

Sidharth Gupta is co-founder, Treebo Hotels.

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