Small hotels may get squeezed

At present, taxes on small hotels are capped, most do not have to pay any service tax or luxury tax

The new goods and services tax (GST) regime is set to make life difficult for small-hotel owners, if the government does not keep them out of the tax ambit.
 
Till now, owners of small hotels that charge between Rs 1,000 and Rs 1,500 a room a night have been kept away from the ambit of state-levied luxury tax and service taxes charged by the Centre or have been asked to pay a small amount. However, these small players might end up paying as much as 18 per cent in taxes under the new indirect tax regime.
 
At present, taxes on small hotels are capped and most do not have to pay any service tax or luxury tax. This was being done to promote tourism and budget travel. According to government data, there are around 185,000 small hotels and these charge between Rs 1,000 and Rs 1,500 a room a night.

 

Many smaller players said they would be bracketed with four-star hotels if the government does not make changes in the GST regime to give them relief. If the government does not give any relief, then hotels with less than Rs 50 lakh in revenue per year would pay around five per cent as GST and those above that threshold would have to pay 18 per cent in taxes.
 
“Till now, small-hotel owners have been kept out of the tax ambit, which has helped in keeping our rates low and making us affordable for the budget traveller,” said Arun Gupta, president of Delhi Hotel Mahasangh, which has around 1,500 small hotels as members. “Under GST, we would be brought into the category of four-star hotels. While they have restaurants, gyms, etc, we are not allowed to do so and earn additional revenue. This would make our business model unviable.”

 
Compliance costs would also add on to the woes of the small hotel owners who usually have tight budgets.
 
Industry experts said small hotels would have to immediately reach out to the government. “There is no clarity if exemption would come back. Under the GST regime, the intent of the government is to make life easier. However, if small hotels are brought under the ambit of GST, the impact of 18 per cent would be huge. Even tax credits would not be able to cover an increase in costs. They need to immediately make a representation to the government,” said Krishan Arora, partner, Grant Thornton India LLP.