Budget 2019: FHRAI demands uniform GST rate of 12% for hotels

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A most unique recommendation by FHRAI for incentivizing the domestic traveller is that of introducing a special deduction under Chapter VI-A for resident Indian citizen up to INR 50,000/- for travelling within the country.

Ahead of the Union Budget 2019-20, the Federation of Hotel and Restaurant Associations of India (FHRAI) has appealed to the Finance Ministry for bringing in some major reforms with regards to direct and indirect taxes, among other reforms for the growth of tourism and hospitality in the country.

The Federation has recommended Grant of infrastructure status, treating all Foreign Exchange as exports or deemed exports, permitting weighted deduction of 150 per cent on capital expenditure incurred under Section 35AD, two GST rate options for restaurants: 

1) implementing uniform GST rate of 12 per cent with Input Tax Credit (ITC) and,

2) a composite GST with flat 5 per cent rate under which restaurants will not avail ITC, and a uniform GST rate of 12 per cent for hotels across all room tariffs, among others.

A most unique recommendation by FHRAI for incentivizing the domestic traveller is that of introducing a special deduction under Chapter VI-A for resident Indian citizen up to INR 50,000/- for travelling within the country. At present, the Indian tourist prefers travelling abroad owing to the erratic tax structure leading to high room rates in the country.

“The hotel industry has regained growth over the last couple of years and is now hopeful from the Modi 2.0 Government to fast track several crucial reforms and make the most of the bullish phase in hospitality sector. We request the Finance Ministry under the able leadership of Smt. Nirmala Sitharaman to introduce a special deduction under Chapter VI-A for resident Indian citizen up to INR 50,000/- for travelling within the country. Travel culture in the country is on the rise and if given the right kind of incentive to the domestic traveller, we can give a further boost to domestic tourism and attract the traveller who now prefers to holiday abroad due to the high cost incurred within the country, mostly due to high taxes” said Gurbaxish Singh Kohli, Vice President, FHRAI and President, Hotel and Restaurant Association of Western India (HRAWI).

Among other recommendations, the FHRAI has requested the Government to grant soft loans to hotels with a minimum project cost of INR 25 crore as against the present INR 250 crore. It has also asked that the GST on property rent be abolished for establishments to be able to remain viable.

“Our request to the Government, to include two options in GST for restaurants is; a composite GST with flat 5 per cent rate under which restaurants will not avail ITC and the other option being 12 per cent rate with ITC. The choice of opting into either of the options should be with the establishment. Furthermore, GST on property rent should be abolished as this makes it unviable for establishments to sustain the high costs leading to many businesses closing down,” added Mr. Kohli.

The Federation has also pointed out that the 28 per cent GST rate applicable for room tariffs of Rs.7500/- and above is inappropriate. The tariff is tantamount to hardly USD 110 – 120 and a luxury room accommodation in this basic cost is not possible, not just in India but anywhere in the world.

“Ever since the GST came into effect, we’ve been requesting for the rate categorization of hotel tariffs to be on the basis of the transaction value instead of on the declared tariff. Hotels presently are required to levy either 0 or 12 or 18 or 28 per cent GST rates based on the declared room tariffs. We recommend that the rate categorization be on the basis of transaction value instead and also that a uniform rate of 12 per cent be levied with Input Tax Credit being allowed for this infrastructure industry. We have also requested for GST exemption or a GST refund for their purchases made in India, when foreign tourists return home. Tourists will be able to claim tax refund at the airport at the departure and this will help increase the foreign exchange earnings for the country,” said Kamlesh Barot, past-President, FHRAI.

The FHRAI along with HRAWI have recommended a few policy reforms for the sector, which would facilitate a favourable and sustained growth for the industry.

“We’ve requested for increasing the budget on tourism expenditure, designating Special Tourism Zones in each city for restaurants, bars and lounges to operate 24 x 7; availability of finance from banks and TFCI to be eased; restoring the rate of depreciation to 20 per cent from the present 10 per cent; and the removal of hygiene and sanitation monitoring regulations from all Municipalities in view of the All India FSSAI Act, to avoid duplication of process and manpower,” added Mr. Barot.

“We hope this year’s Union Budget to take more progressive steps towards making Incredible India, Irresistible India to the discerning traveller. Also, FHRAI will continue to work inclusively with the Govt. towards making our country one of the top tourism destinations of the world,” concludes Mr Kohli.