GST to be Charged on Actual Room Tariffs: Will Enhance Occupancy Rates

THE HOSPITALITY industry is in much relief after the GST Council’s decision to levy goods and services tax (GST) on the actual tariff for hotel rooms instead of declared tariffs. This decision highlights the further improvement in occupancy rates of the hotel. 

Earlier, GST applicable on room tariffs created much confusion for the hotel industry and its guests. The GST was mandated to be levied on the Declared tariffs on hotel rooms. 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.

Earlier, Hotel and Restaurant Association of Western India  (HRAWI) had appealed for the rate categorization for hotels to be done basis the Transaction value or Actual value rather than on the Declared tariff.

"This is a welcome move and the HRAWI thanks the Government for considering our request. The Association's consistent engagement with the Govt and GST Council has finally yielded results. Applying GST rate on Declared Tariff was incorrect and caused confusion for guests," says Mr Dilip Datwani, President, HRAWI. 

For instance, if declared tariff on a room stay is Rs.9000/- and the stay is charged at Rs.6000/-, hotels are required to levy a GST of 28 percent instead of 18 per cent. This used to increases the tax burden drastically. 18 percent GST is applicable for room tariffs ranging between Rs.2500 and Rs.7500 and tariffs of Rs.7500 and above attracts 28 percent GST.

Applauding the Government’s initiative, the hospitality veterans are holding a positive opinion on the reform. "Hotel these days operate on dynamic pricing and tariffs vary depending on factors such as occupancy seasons, etc. The change will certainly lessen the burden on the hotels and especially the customers will benefit the most as it will lower the tax burden. Overall, it's a logical decision which is welcomed and it certainly makes more sense to charge GST on the charged tariff rather than the declared one,” said Abhishek Goel, MD, Regenta LP Vilas by Royal Orchids. 

Adding to it, Ramendra Pratap Singh, GM, Radisson Noida Sector 55 commented, “This will ensure absolute clarity on GST charges on room rates and do away with ambiguity which was likely to emerge out of declared tariff and actually charged tariff. Earlier it was confusing for the consumers as they always had to pay GST on the declared tariff.”

This decision will bring much aid to leisure travellers who do not receive Input Tax Credit (ITC), unlike the business travellers. “At many of our leisure properties, the tariffs either get discounted or even demand a premium based on the season. During the off seasons, we sometimes discount it by as much as 50 percent and in peak seasons with good occupancy, the tariffs are higher. The change will certainly lessen the GST burden on the customer and is a positive development for the hospitality industry,” adds Rishi Puri, Vice President, Lords Hotels & Resorts.