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Infrastructure Status Required

Developing tourism infrastructure and lowering the tax slab in the mid-market segment is the need of the hour to boost the hospitality sector.

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Tourism is for the most part underpenetrated in India and hotels are the main component in travel and tourism.

A full-blown infrastructure status for the hotel sector, further rationalisation of the Goods and Services Tax (GST) on hotel rooms, and creating an incubation fund by the government for small and medium tourism entrepreneurs in India are some of the expectations from the Budget 2020.

The GST Council, in its announcement made last year, may have given a push to the hospitality sector with the GST rate cuts on the hotel tariffs, but more needs to be done to give a full-fledged boost to the sector. Developing tourism infrastructure and lowering the tax slab in the mid-market segment is the need of the hour to boost the hospitality sector.

Although GST Council lowered the GST rate on the premium segments, the mid-market segment rate remained unchanged at 12 per cent, which continues to be a pain point for consumers and the hotel industry, the council informed. No doubt the government has been receptive to our crying demand but more actionable steps need to be taken in this direction.

The GST Council last year green-lighted reduction in the rates on the hotel tariffs. The rooms with the tariff of Rs 7,500 and above attract a GST of 18 per cent instead of 28 per cent. The rooms with tariff between Rs 1,001 and Rs 7, 500 are taxed at 12 per cent.

18 per cent GST is still high in this competitive scenario, it would have been better if it was kept in the range of 12-15 per cent for the rooms with the tariff of Rs 7,500 and above. Hence, there is a need for further rationalisation of taxes to fuel demand in the sector.

The industry has been clamouring for infrastructure status for over two decades. In the year 2012, the Congress-led UPA government provided the status to the three-star or higher category hotels outside cities with a population of over one million. Remarkably, only 3-4 percent of hotels belong to this category. Hence, the watered-down infrastructure status did not help in giving any phillip to the sector. In 2013, the government granted infrastructure status only to hotels with a project cost of more than Rs 200 crore each (excluding land costs), and to the convention centers with a project cost of over Rs 300 crore each.

It will not be surprising to know that out of the total projects proposed in the hospitality as on date only a minuscule 10-15 per cent will pass muster under this policy regime. At the outset, it was construed as a step in the right direction. But, in the hindsight, it cannot be. This Rs 200 crore mark will not do any good. The government needs to drastically bring this down to step up development in the sector.

Lastly, facilitating micro and small enterprise loans under the Mudra and CGTMSE schemes (Credit Guarantee Fund Trust for Micro and Small Enterprises) through easier availability and larger outlays could benefit the industry as well as customers. 

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


Ankur Bhatia

The author is Executive Director, Bird Group

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