Since 2018, hoteliers have expressed their apprehensions that this tax incongruity results in a decline in restaurant patrons, who prefer standalone restaurants due to the tax advantages they provide. Industry stakeholders advocate for a standardized 5% GST rate across all dining establishments to create equitable ground.
In a landscape where standalone restaurants thrive nationwide, intensifying competition, the hotel industry questions the relevance of a hotel room rate in determining dining options.
Compounding the challenges is the growing trend among hotel guests to opt for food delivery services from external sources.
The process of the GST department which ties the dining GST to the hotels declared room tariff and the hotel restaurants at a competitive disadvantage. For instance, a meal costing ₹2,000 at a standalone restaurant incurs only ₹100 in GST, whereas the same meal at a hotel restaurant would attract ₹360 in taxes.
The predicament is further intensified for mid-market hotels, catering to a clientele especially attuned to pricing.
Hoteliers posit that the initial design of the GST framework might have been based on the assumption that hotel patrons were less concerned about pricing and could absorb heightened costs.
"Hotels invest substantial capital in developing food and beverage facilities... Levying a higher GST of 13% solely on hotel restaurants is unjust... This dissimilarity causes customers to view hotel dining as pricier and prompts them to seek dining alternatives beyond the hotel, including takeaways. This situation requires rectification. GST rates need to be disconnected from hotel room tariffs," expressed KB Kachru, Vice President of the Hotel Association of India, and Chairman Emeritus and Principal Advisor for South Asia at Radisson Hotel Group.
"If it's an economy hotel, the rule works as they can apply a 5% GST since their room tariffs typically stay under ₹7,500. But in other formats, customers feel the pinch as hotel restaurants become less economically accessible. This rings true even in the banquet business, where the sums involved are substantial," noted Ajay K. Bakaya, Managing Director at Sarovar Hotels.
Achin Khanna, Managing Partner at Hospitality Consultancy Hotelivate, remarked, "While hotel food and beverage outlets already contend with competition from the rapidly expanding independent restaurant industry, the additional 18% GST imposed on hotel dining, compared to the standard 5%, further dissuades guests from dining at the hotel, resulting in missed sales opportunities."
Read also: Industry Wants 5% GST on Hotel Restaurants to Compete Standalone
Samir MC from Fortune Park Hotels provides a nuanced perspective, recognizing the intricacies within India's diverse tax system. He suggests that hotels should elevate their dining experiences to warrant the higher tax bracket.
However, the consensus remains evident: the current tax model is untenable and requires reform to uphold the vibrancy of hotel-based dining services.
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