At the GST Council meeting in Goa on September 20, the Indian travel and hospitality industry finally got to hear what they have been begging for, for quite some time now. Strange, considering the tourism industry employs millions and contributes a decent share towards India’s fledgling GDP. While trade bodies and industry leaders have lauded the FM, the sentiment being “something is better than nothing,” the hard fact they all acknowledge in private is that this government or for that matter any government treats tourism as an “elitist” activity deserving no “concessions”. They fail to comprehend the power of this industry to ignite and transform the economy.
$5 trillion, anyone?
The GST on hotel rooms with tariff up to Rs. 1000 per night will now be nil. Room tariff between Rs. 1001 and Rs. 7500 per night will now attract 12 per cent GST as against existing 18 per cent. Similarly, room tariff above Rs. 7500 will attract 18 per cent GST as against existing 28 per cent.
By any definition, 28 per cent tax on hotel rooms was ridiculous. $100 rooms are not classified as ‘luxury/premium’ in any part of the world. Our ‘luxury/premium’ category rooms are the highest taxed in the world, more than those in New York, Paris and London!
The rationale of “milk the luxury hotel business with exorbitant taxes” never held any sensible ground. For that matter even 18 per cent tax on a $55-65 room is sheer madness. Indian hospitality continues to be non-competitive for both international and domestic travellers compared to its SEA neighbours which are taxing hotel rooms far less – Malaysia at 6 per cent, and Thailand and Singapore at 7 per cent. It is a fact that, with enhanced air connectivity and cheap air fares, a destination like Goa competes with Phuket today to attract domestic tourists. The problem is compounded when one considers MICE business where a 100 rooms for at least three nights are needed.
While many hope the tax cut will spur demand during the upcoming festival, holiday and wedding season, the spike will be nominal as household incomes have not increased in the recent past. Instead of a corporate tax cut, if personal income tax was reduced, one would have seen demand explode and even the tourism industry would have been inundated with bookings. So in the current situation, the ‘Diwali gift’ will have no big impact on domestic or international tourism.
There are other fiscal areas to be addressed on the tourism front to become more international traveller friendly. Many countries in Europe offer refund of VAT for purchases by foreign tourists. Israel has zero VAT for charges billed to foreign visitors. In India that would mean reimbursing GST levied on international tourists or killing it altogether. Now that would be a real game changer if done.
Attending the IATO Convention in Kolkata had two key takeaways. I heard our new MoS for the first time and have to say this. Prahlad Singh Patel came across as very consultative and collaborative, and has done whatever homework he could in the little time he has had. That’s certainly reassuring. I was visiting Kolkata after seven long years and was truly surprised to see the city and especially New Town (Rajarhat) in good shape. Agree or disagree with Mamta-di and her antics, but her administration has achieved a lot on the public infrastructure side. The Biswa Bangla Convention Center where the inaugural ceremony was conducted is truly world-class. Way to go!