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Posted : 16 November 2017 12:47:01 | By TWO Bureau | Two Bureau


A joint delegation of committee members of the Hotel and Restaurant Association of Western India (HRAWI) yesterday met the Hon’ble State Finance Minister, Govt. of Maharashtra, Shri Sudhir Mungantiwar to thank the Government for the unprecedented reduction in the GST rate for restaurants. Terming the rationalization in GST as a milestone in the true spirit of "Ease of Doing Business", the HRAWI stated the move as a step in the right direction that will trigger greater compliance, enhance guest's spending power and increase footfalls creating a more conducive environment for restaurant business in the country. The Association in the meanwhile also expressed some of the other GST related concerns of the industry that affected businesses negatively and has submitted a detailed representation outlining the same.



“We cannot be thankful enough to the Government of India, the Honourable Prime Minister, the Union Finance Minister and all GST council ministers for the recent reduction in GST on restaurant services. While this is expected to boost business, the withdrawal of ITC will impact it in a negative way. Expenditure like capital expenses, franchising, outsourcing and select food items among others will take a beating as GST paid on such services or expenditures will not be available for input credit. This not only discourages expansion or development but also makes it difficult for establishments to pass on any reductions to the customers. Hence we humbly request the Govt. to retain ITC for meaningful implementation and effective reduction in burden on consumers at large,” says Mr Dilip Datwani, President, HRAWI.


Among other key reconsiderations suggested by HRAWI include making IGST available for tourism accommodation services; basing the rate categorization for hotels on Transaction value rather than on Declared tariff; reducing the GST rate on room tariffs of Rs.7500/- & above to 12 per cent and accordingly bring the GST rate for restaurants at such hotels at par with all others to 5 per cent, treating foreign exchange earnings in tourism services as either exports or deemed exports; allowing hotels and resorts to unbundle package rates, considering by default a room unit in accommodations as a double occupancy room; and not levying GST on complimentary meals.


One of the other grave concerns affecting the hospitality industry has been the significant number of cancellations in the MICE segment across the country. The unavailability of IGST is discouraging many organisations from holding their events away from their home states where they are registered under GST. Many others are considering conducting their MICE activities in the neighbouring South and East Asian countries on account of both lower taxes and tax credit before exit.


Image result for HRAWI kamlesh barot

“We have put forth this particular concern as one of the biggest threats to the emerging Indian MICE market in India. The unavailability of IGST credit for immovable properties for tourism purposes such as for hotels and related establishments is negatively impacting a huge business tourism movement in the country. Barring some companies in the business of FMCG or services, not all corporates are registered across all States in India and are reconsidering conducting their MICE related activities. A consequence of this is evident in the pattern of cancellations and the sharp drop in booking for MICE across the country. The HRAWI has requested and suggested that Place of Supply Rules and IGST Act be accordingly amended to incorporate, in case of supply, to registered person as ‘location of Service recipient’ or as the place of hotel, in case of an unregistered person. The suggestion has been recommended to avoid tax on tax and to revive the MICE industry which today is one of the biggest revenue generators for hotels,” says Mr Kamlesh Barot, past President, Federation of Hotel and Restaurant Associations of India (FHRAI) & HRAWI.


Another issue that has created much confusion for the hotel industry is with regards to the GST applicable on room tariffs. Presently, the GST is mandated to be levied on the Published tariffs or the Declared tariffs on hotels. However hotels are known to offer discounts on room tariffs to patrons which alter the Declared rates and which could correspond to a different GST rate as per the prescribed rate slabs on room tariffs. Hence the HRAWI has appealed for the rate categorization for hotels to be done basis the Transaction value rather than the Declared tariff.


“The publishing of charges for hotel accommodation was relevant back in the days when there was no other quicker means of communicating the same. Today with internet, any changes in tariffs can be communicated real time, similar to airline ticket bookings where the rate changes every minute depending upon the flying day, making the concept of Declared tariff redundant,” says Mr. Datwani. “In the Service Tax (ST) regime, the ST was levied at an effective rate of 9 per cent (after abatement) on the actual value charged for the service. So for instance, previously if the room tariff was Rs.5000/- then the ST would’ve been 9 per cent of that amount. Whereas today, the same room which is charged at Rs.5000/-, assuming there is a declared tariff of Rs.8000/-, hotels are required to levy a GST of 28 per cent. This is unfair and it increases the tax burden drastically. Hence we have suggested that the customer be levied a GST based on the best available rate or the contracted amount to avoid any ambiguities in interpretation and disputes,” he adds.


Among other recommendations made in the representation, the association has requested for the foreign exchange earned by tourism services to be treated as exports or deemed exports. The HRAWI has stated that since GST on goods and services exported from India are exempted, the tourism industry be treated no differently. Reinstating tourism exports as meeting all the criteria as other exported goods and services where the service provider is in India, earnings are in foreign exchange and buyers are of foreign origin. The association has pointed out that the place of provision of services cannot be any place else than in India as tourism services are intangible and can’t be delinked from tourism products that include our landscapes, seas, and cultures among others.


“One of the reasons our tourism industry fails to attract as many foreign tourists as it should, is the heavy tax on tourism. While many neighbouring countries levy a tourism GST of 5 per cent our GST is roughly around 23 per cent. With our hotel rates at ~18 per cent and tour operators at an additional 5 per cent, at a minimum rate of 23 per cent we are the most highly taxes tourism country. Smaller countries like Singapore, Malaysia and Thailand have tourism visitors ranging from 12 million to 28 million as against India’s 9 million. China with tax rate of 6 per cent receives close to a whopping 55 million foreign tourist visitors. Hence we recommend that tourism exports be treated at par with other exports and such transactions be zero rated under GST without the flow of input credits. If this recommendation is considered, it could easily increase the Indian tourism earning by at least another 10 to 20 per cent,” concludes Mr Datwani.


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