30th September, 2020

Lower GST and Infrastructure Status for hotel industry, demands Tourism ministry

The tourism ministry is batting for reduction in the Goods and Services Tax (GST) rates for the five-star hotels in the country reasoning that it is a foreign exchange generating sector. It is also persuading government to grant ‘infrastructure status’ to the hotel industry which could aid the boost of vital jobs in the sector.

Benefits of infrastructure status to tourism industry

A few of the benefits for tourism industry on attaining ‘infrastructure status’ are:

  • Land available on lower lease rentals for hotel construction
  • Reduction in the number of permits needed to open hotels (70 permits required at present)
  • Establishment of a National Tourism Regulator
  • Regulated framework

Ministry’s aim for tourism sector

The ministry has expressed the tourism sector to generate 100 million jobs (from the current 43 million) within five years. It also wants to attract 40 million tourists (from 14.4 million currently), and generate $100 billion worth of foreign exchange earnings (from about $24 billion at present) within the same time frame.

What is the ministry’s plan?

The ministry has set up four Joint Working Groups — one each on hospitality sector, start-ups, ‘MICE’ (Meetings, Incentives, Conferences, and Events’-tourism), and niche tourism — to work on recommendations from the industry,

Each working group would have a representative from the tourism ministry, the Department of Industrial Policy and Promotion, industry, and the government’s investment facilitation and promotion wing ‘Invest India’.

Union tourism minister Alphons Kannanthanam said his ministry would soon forward the proposal for lowering GST rates on five star-hotels to the finance ministry.

Why lower GST?

There is a 28% GST (the highest slab) on rooms that have a daily tariff of Rs 7,500 or above. The tourism industry says that 28% GST rate makes Indian hospitality market uncompetitive. The foreign tourists would begin opting to travel to neighbouring countries such as Thailand, Malaysia and Singapore where the tax rate on hotels is only 7% or lower.

Why ‘infrastructure status’?

The high cost of land is making it difficult to construct hotels. The ministry now wants the states to give land on concessional rates, or adopt a model where the lease amount is kept low. This may promote the construction of more hotels with per day room tariff of less than Rs 2,000 that is preferred by ‘budget tourists’.

Currently, the infrastructure status is granted to the projects above Rs 200 crore, the ministry wants it to be extended to projects worth Rs 50 crore and above.

Why tourism operator?

It is proposed to bring out and implement a regulatory framework for the sector -- including for home-stays and online portals.