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28% GST on luxury hotels likely to stay

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The 28% GST tax on luxury hotels with tariffs of Rs 7500 and above is likely to stay despite the hotel industry lobbying to reduce the tax rate as the government is unlikely to amend the tax slab now, officials familiar with the matter told ET.

The 28% tax on luxury hotels with tariffs of Rs 7500 and above makes India one of the most taxed countries in the world for hotels but the government is of the view that the slab applies to very few hotels in the country.

“It is affecting less than 10% of the hotel supply. In other hotel categories, the tax rates have been reduced by about 2-3% across states. So hoteliers in other categories are not complaining. Unless revenue stabilises from GST, they are not going to make a case to reduce it. Before the general elections, is it unlikely that they will look at something contentious like reduction in the tax rates for luxury hotels,” said a government official familiar with the developments.

The GST council had revised GST tax slabs in the hospitality sector in June last year. The 28% tax slab threshold, which was earlier applicable to hotels with tariffs of Rs 5,000 and above, was revised to apply to hotels with tariffs of Rs 7,500 and above. Hotels with tariffs between Rs 2,500-7,500 are charged 18%.

According to research by consulting firm HVS, the primary GST rate of 28% on hotels would have made the star category hotels in Indian cities the most taxed in the world, surpassing those in New York, London and Paris excluding add-on levies such as municipal tax and service charge.

“If one were to put aside other costs on an ‘apples to apples’ comparison, not a single state was levying such a high tax on its guests as it will now be the case with this new tax regime,” HVS had said.

Indian chains like ITC NSE -0.76 % have been lobbying alongside other hotel chains and industry associations for a reduction in tax rates.

“We believe that a rationalised GST, benchmarked to international standards, could spur demand and make India a more competitive destination, earning valuable foreign exchange for the nation,” Dipak Haksar, chief executive for ITC Hotels and Welcom Hotels had told ET in November.

Source: Economic Times