Proposal to Unlink F&B GST from Hotel Room Rates for Better Hospitality

Background on the Request

The Federation of Hotel & Restaurant Associations of India (FHRAI) has made a significant appeal to government authorities, urging them to separate the Goods and Services Tax (GST) on Food & Beverage (F&B) services from hotel accommodation pricing. The rationale behind this demand stems from multiple representations that highlighted the unfairness and operational challenges that hoteliers face under the current tax structure.

Current Tax Structure Analysis

As things stand, hotels that charge Rs. 7,500 or more per room per day are subjected to an 18% GST on F&B services, alongside the benefits of input tax credit (ITC). In contrast, hotels with tariffs below this threshold must impose a 5% GST without ITC benefits. This discrepancy puts pressure on the industry, as hotels are often compelled to maintain a certain price point or risk losing out on valuable tax credits.

FHRAI’s Flexible Proposal

The FHRAI argues for a more adaptable approach where all hotel restaurants can choose between the existing framework—18% GST with ITC or 5% without ITC—regardless of room rates. This change could provide a much-needed boost to hotel operations without compromising on service quality.

Market Trends Impacting Hospitality

The luxury and upscale hotel segments are witnessing a steady increase, with a notable percentage of upcoming hotel developments positioned within the luxury and upper-midmarket spheres. FHRAI argues that the delinking of F&B taxation from room rates will foster growth in these segments, ultimately leading to heightened tax revenues for the government.

Operational Advantages

Data from the Ministry of Tourism reveals that India houses around 417 five-star and deluxe hotels, each possessing multiple food and beverage establishments. These hotels bear substantial operational expenses, thereby making ITC an essential element of their fiscal strategy. Many hotels will likely opt to maintain the 18% GST bracket due to its benefits, even if given the option to switch to a lower tax rate.

Moreover, midscale hotels that currently keep room tariffs under Rs. 7,500 will likely adjust their pricing structures if F&B services are uncoupled from accommodation rates, facilitating smoother compliance.

Standalone Restaurants at Risk

Branded eateries, which often have fixed operational costs, might also align with 18% GST due to the ITC incentive. With more than 500,000 restaurants nationwide, a substantial number could transition to this tax bracket, bolstering government revenue in the process.

Addressing Industry Concerns

The FHRAI has pressed for the government to formally regularize past GST payments based on existing conditions to diminish uncertainty stemming from previous regulations. Faced with a multitude of strong arguments, FHRAI is advocating for timely policy revisions that would promote both industry advancement and increased tax income.

A Win-Win Situation

According to K. Syama Raju, the President of FHRAI, unlinking the F&B rates from room tariffs represents a necessary evolution for the hospitality sector and will simultaneously benefit the government. He firmly believes that this adjustment won’t lead to a loss in revenue; instead, it can fuel higher GST collections through enhanced business activity. Likewise, Pradeep Shetty, the Vice President, has conveyed a sense of urgency, stressing that many hotels refrain from exceeding the Rs. 7,500 room tariff threshold due to the current linkages. A shift towards a more adaptable tax policy would allow the hospitality industry to thrive.

Moving Forward

As FHRAI remains dedicated to collaborating with governmental entities, GST Council representatives, and local authorities, the ultimate goal is a streamlined and fair tax system that caters to both the hospitality industry and the wider economy.

Conclusion and Implications

The call from FHRAI to delimit the F&B GST from hotel accommodation tariffs underlines a significant opportunity for the hospitality sector to cultivate more sustainable practices while simultaneously ensuring government revenue growth. Although formal reviews and honest feedback can impart valuable insights, they pale compared to firsthand experiences.

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