FHRAI proposing GST Rationalisation for hospitality sector

Reetu | Apr 29, 2022 |

FHRAI proposing GST Rationalisation for hospitality sector

FHRAI proposing GST Rationalisation for hospitality sector

The Federation of Hotel and Restaurant Associations of India (FHRAI) has recommended that the GST Council assess the current GST structure for the hospitality sector and appeal for it to be rationalised, citing the extraordinary spike in inflation.

With costs of edible oils, cooking gas, petrol, transportation, and other commodities rising, the group said in a statement that it has asked the government to explore simplifying GST procedures so that businesses can take advantage of the Input Tax Credit (ITC).

It has been suggested that hotels’ food and beverage revenue be decoupled from their hotel room price slabs and that they be allowed to charge GST at 5% without ITC under the composite scheme and at 12% with ITC under the separate scheme. Similarly, the council has requested that two slabs of GST rates be retained for standalone eateries, as was done in the previous service tax regime. The organisation has proposed lowering the GST on LPG used in hotels and restaurants from 18 percent to 5% in order to save operational expenses and benefit customers. It has also requested that the GST on rent payments be removed or that input credit be provided on rent payments to help cushion the pain of growing inflation.

“All F&B revenue should be decoupled from any room charges, if they are part of hotels, by permitting a 5% composite scheme for units that do not qualify for ITC and a 12% GST for those that do.” The GST rules will be simplified, resulting in more compliance, particularly from small businesses. A mechanism should be in place to allow businesses to claim GST paid on rent and other GST costs as an input. This will increase the viability of the enterprises. In the case of restaurants, two alternative GST slabs should be allowed: one at the current 5% GST rate without ITC and the other at 10%. The revenue is being hampered by the constant rise in the prices of commercial LPG, fuel, oil, and other necessary goods virtually every month. The sector is only now beginning to recover from a two-year long catastrophe. “At times like these, lowering the GST rates for the industry might make a difference,” said Gurbaxish Singh Kohli, the association’s vice president.

The organisation also noted that, as a result of the international loosening of barriers, the GST in most countries that rely on FTAs has been cut. However, India’s GST rates remain among the highest in the world, making both domestic and international travel prohibitively expensive.

According to him, the current threshold limit for hotel room tariffs with 18 percent GST is Rs.7500. This should be bumped up to Rs.9500. The exchange rate of the dollar per rupee was Rs.64 at the time the threshold was set at Rs.7500, but it has already surpassed Rs.76 per dollar.

“Raising the threshold limit will bring the rupee and the dollar’s exchange rates closer to parity. In addition, the threshold for 0% GST on hotel rooms should be raised from 1000 to 2000 dollars per room per day. This would help to improve the budget segment of the hotel industry, as well as attract more domestic guests to visit and promote tourism in the country. Hotels should be able to bill IGST on corporate and MICE bookings as well. This will allow businesses to claim GST input credits, incentivizing them to spend their annual budgets in Indian cities rather than Southeast Asian vacation spots,” he added.

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