26 38525/2019/market research division(mrd)...during the course of this research. therefore, we...

i

38525/2019/MARKET RESEARCH DIVISION(MRD)26

i

A Draft Study Report

on

Assessing Impact of taxation/incentives on

accommodation tariffs of hotel industry in India vis-à-vis other countries

Submitted By

Indian Institute of Tourism and Travel Management

(An Autonomous Body under Ministry of Tourism,

Government of India)

Submitted to

Market Research Division, Ministry of Tourism, Government of India


ii

Acknowledgement

Indian Institute of Tourism & travel management is grateful to the Ministry of Tourism,

Government of India for assigning the research project entitled “Assessing Impact of

taxation/incentives on accommodation tariffs of hotel industry in India vis-à-vis other

countries”. The present report is the outcome of contributions of experts and different

tourism stakeholders like Hoteliers, Travel Agents, Tour Operators, Restaurant

Owners and Government Officials. It is difficult to acknowledge by name all those who

have sincerely contributed for this study; in fact we still try to express our whole-

hearted appreciation for their kind support.

First of all we would like to express our sincere gratitude and thanks to Shri Prahlad

Singh Patel, Hon’ble Minister of State (Independent Charge) of Ministry of Tourism

and Minister of State (Independent Charge) of Ministry of Culture for his concern on

such an important issue related to development of Indian tourism.

The research team from IITTM solemnly expresses its appreciation to the officials of

Ministry of Tourism, Government of India for showing their confidence and trust

during the course of this research. Therefore, we express thanks and gratitude to the

following officials of Ministry of Tourism:

Shri Yogendra Tripathi, IAS - Secretary (Tourism)

Smt. Rashmi Verma - Former Secretary (Tourism)

Shri P.C. Cyriac - Additional Director General (MR)

Shri Fakhre Alam - Joint Director (MR)

Ms. Aqsa Ilahi - Dy. Director (MR)

Smt. Anshika Bhatnagar - Assistant Director

Shri S.K. Mohanta - Programmer (MR)

We, finally, acknowledge the valuable contribution made by all domestic and

international tourists for sparing their valuable time to provide us with important

inputs by filling the questionnaires.

Research Team


http://tourism.gov.in/senior-officer-profile/912

iii

Research Team

Project Director : Prof. (Dr.) S.K. Lenka Director Indian Institute of Tourism and Travel Management

Principal Investigator : Prof. (Dr.) Monika Prakash

Nodal Officer Indian Institute of Tourism and Travel Management Noida (U.P.)

Investigators : Dr. Deepa Shrivastava

Assistant Professor Indian Institute of Tourism and Travel Management Noida (U.P.)

Dr. Ramesh Devrath Assistant Professor Indian Institute of Tourism and Travel Management Gwalior (M.P.)

Research Associates : Mr. Veeral Dewan

Project Associate Indian Institute of Tourism and Travel Management Noida (U.P.)

Mr. Harish Nair Project Associate Indian Institute of Tourism and Travel Management Noida (U.P.)


iv

Table of Contents

Contents Page No.

Acknowledgement ii

Research Team iii

Table of contents Iv

List of Tables v

List of Figures vi

Abbreviation Used viii

Executive Summary x

S No. Particulars Page No.

1. Introduction 1

2. Literature Review 17

3. Research Design 23

4. Findings and Data Analysis 28

4.1 Effect of taxation/ incentives on accommodation tariffs/ investments patterns in the hotel industry 28

4.2 The proportion/ ratio of taxation on classified/ unclassified hotels vis-à-vis other countries 43

4.3 The Competitiveness of India vis-à-vis its competitors in South East Asia and Asia Pacific in terms of accommodation tariffs

51

4.4 How many hotels/conventions centres etc. have availed the benefits of the incentive of being in the Harmonized list of sub-sectors

56

4.5 The effect of taxation/incentives on restaurants 60

5. Recommendations 73

6. Bibliography 78

7. Appendices 79


v


vi

LIST OF TABLES

Table Particulars

Table 1.1 Tax slab on Accommodation tariff (after 31-07-2017)

Table 1.2 Tax slab on Accommodation tariff (after 20-09-2019)

Table 3.1 Research methodology for each objective

Table 4.1.1 Exhibiting GST Tax Slab of Hotel Segment (Since 01-07-2017)

Table 4.1.2 Present GST tax slab of hotel segment

Table 4.1.3 Effect of GST on Business

Table 4.1.4 GST rates a matter of concern for Corporate Tourists

Table 4.1.5 GST rates a matter of concern for Leisure Tourists

Table 4.1.6 Effect of GST on Walk-in Tourists in Hotels

Table 4.1.7 Generating Bills for every Transaction

Table 4.1.8 Tourists ask to not to generate the bill to save GST

Table 4.1.9 Preference of Online Booking

Table 4.1.10 Filling of GST return makes GST complicated

Table 4.2.1 GST tax slabs at the time of GST introduction

Table 4.2.2 GST tax slab post 17 October 2019 revision.

Table 4.2.3 Tax rate levied by hotel in various Countries.

Table 4.2.4 Tax rate of all the countries along with Service charge and Cess

Table 4.2.5 Tax rates of South East Asian countries and Australia.

Table 4.3.1 Exhibiting Average Room rate of India and neighbouring countries

Table 4.3.2 TTCI Ranking of Asia Pacific Countries 2019

Table 4.4.1 Projects Availing benefits under Harmonized List


vii

LIST OF FIGURES

Figure Particulars

Figure: 1.1 Components of GST

Figure 1.2 Indirect Taxes replace under GST regime

Figure: 1.3 GST tax rate Slab

Figure 1.4 Indian taxation system before GST

Figure 1.5 Impact of Tourism on Global Level

Figure 1.6 Advantages of tourism in India

Figure 1.7 Growth, trends and schemes of tourism and hospitality sector

Figure 1.8 The 5 A’s of Tourism

Figure 1.9 Pros and Cons of GST

Figure: 2.1 Indicators to determine success

Figure 4.1.1 FDI equity inflow in Hotel & Tourism sector

Figure 4.1.2 Growth of new hotels in NCR

Figure 4.1.3 Average tariff hotel rooms in India (in USD) from the Financial Year 2001-2018

Figure 4.1.4 Effect of GST on Business

Figure 4.1.5 GST rates a matter of concern for Corporate Tourists

Figure 4.1.6 GST rates a matter of concern for Leisure Tourists

Figure 4.1.7 Effect of GST on Walk-in Tourists in Hotels

Figure 4.1.8 Generating Bills for Every Transaction

Figure 4.1.9 Tourists ask to not to generate the bill to save GST

Figure 4.1.10 Preference of Online Booking

Figure 4.1.11 Filing of GST return makes GST complicated

Figure 4.2.1 Pictorial representation of Classification of Hotel Industry in India

Figure 4.2.2 Pictorial representation Criteria of Hotel Classification

Figure 4.2.3 Sample Bill of Hotel from Pre-GST era.

Figure 4.3.1 The travel and tourism competitiveness index framework

Figure 4.3.2 Average daily rate in USD of India between 2001 and 2018

Figure 4.3.3 Average Room Rate of Hotels in Asia Pacific and Middle East/ Africa

Figure 4.4.1 Characteristics of Infrastructure


viii

Figure 4.5.1 Showing the organized and unorganized segments of restaurants

Figure 4.5.2 Indian organized food market segmentation for the year 2019

Figure 4.5.3 Pre-GST and Post GST for restaurants.

Figure 4.5.4 VAT system followed in restaurants

Figure 4.5.5 GST on Non-AC and AC restaurants

Figure 4.5.6 Restaurant owners/managers response about effect on Business after GST implementation

Figure 4.5.7 Response by Restaurant owners/Managers

Figure 4.5.8 Restaurant owners’ response about GST Effect on Profits

Figure 4.5.9 Restaurant Owner’s Response on Streamlining in terms of Procurement of Raw Material after GST

Figure 4.5.10 Customer's awareness about GST rates in the time of Payment

Figure 4.5.11 Awareness in Restaurant Owners about GST Input Credit Benefit

Figure 4.5.12 Awareness in Customers about taxes levied Pre-GST

Figure 4.5.13 Awareness about GST in Customers

Figure 4.5.14 Awareness in Customers about GST Rates

Figure 4.5.15 Awareness in Customers about Service Charge


ix

LIST OF ABBREVIATIONS USED

Abbreviation Used Full Form

5 A’s Attraction, Accommodation, Amenities, Activities and Accessibility

ADR Average Daily Rate

ARR Average Room Rate

CAGR Compound Annual Growth Rate

CCI Competition Commission of India

CGST Central Goods and services Tax

DIPP Department of Industrial Policy and Promotion

EPCG Export Promotion Capital Goods

E-Visa Electronic Visa

FDI Foreign Direct Investment

FEE Foreign Exchange Earnings

FTA Foreign Tourist Arrivals

FY Financial Year

GDP Gross domestic product

GST Goods and services Tax

IATO Indian Association of Tour operators

IBEF India Brand Equity Foundation

IGST Integrated Goods and services Tax

IIFC India Infrastructure Financing Company

INR Indian Rupee

MICE Meetings, Incentives, Conferences and Exhibition

NBT Nation Building Tax

NCR National Capital Region

OTA Online Travel Agent

PFCE Private Final Consumption Expenditure

PRASAD Pilgrimage Rejuvenation and Spiritual Augmentation Drive

SGST State Goods and services Tax

T&T Tourism & Travel


x

TTCI Travel Tourism competitive index

UNWTO United Nations World Tourism Organisation

USD United States Dollar

UTGST Union territory Goods and services Tax

VAT Value added Tax

WEF World Economic Forum

WTTC World Travel and tourism Council


xi

Executive Summary


xii


Introduction

1

1. Introduction

Taxation policies of the government decide the course of revenue generation. The

economy of a country primarily depends upon the tax system prevailing in a country.

Every sector of the economy and the industries gets impacted by the taxation policies.

Taxation being the primary source of income of the government is being levied on

different sectors differently. However, there is no iota of doubt that government

always keeps in consideration the financial statuses and incomes of the individuals

and the firms. These considerations ensure equity, social justice, revenue generation

for public spending and redistribution of income to bridge the gap between haves and

have not.

Tourism and Hospitality industry is no exception to the taxation system. Hospitality

categorically has direct impact of these taxation policies. The spread of hospitality

industry covers two-time meals for millions of people of India and its extent has huge

amount of socio-economic impact. Recently, a lot of changes has been brought in the

taxation system and introduction of GST has changed the dynamics of the business.

The need is to assess the impact of changes, VAT and introduction of GST on hospitality

sector of the milieu of tourism and hospitality industry. The objective is to develop

better understanding of the prevailing conditions and to assess the impact at ground

level, specifically between stakeholders.

Taxation System

Taxes in India are levied by both central and state governments. They are charged over

individuals and firms either directly or indirectly. With every annual budget changes

in tax rates are observed which is determined by the government, considering the

economic health of the country. Ironically, India has been struggling in collection and

proper administration of taxes. Challenges like cascading effects on taxes, interstate

smuggling and tax evasions were troublesome in proper management of the system.

Taxation in tourism and hospitality industry is a critical issue. There are probable

chances that increase in taxes may take the tourists away from destinations.

Moreover, the stay period of a tourists and their movement inside the country may

shrink. The academic and research side of exploring such potential opportunities and


2 Assessing Impact of taxation/incentives on accommodation tariffs of hotel industry in India vis-à-vis other countries

threats in hospitality sector is the need of time. Opinions of various stakeholders may

differ on the prevailing tax system particularly the effects of GST on hotels and similar

segments and thus, the significance of taxation in tourism and hospitality industry

should be studied. It is essential and a necessity for the researchers to understand

tourism’s tax structure, its levels and magnitude, and the impact of tourism taxation.

Goods and Service Tax (GST)

Goods and service tax (GST) was introduced in 2017 in India. It is a destination based

unified tax which is levied at all stages starting from manufacturer to final consumer.

Undoubtedly, introduction of GST taxation system with the objective of one country

one tax is the largest indirect tax reform in India. One of the prime objectives behind

introducing GST was to promote the ease of doing business. GST replaced 17 indirect

taxes which were origin-based taxes in nature and brought in destination-based tax

system. Creation of common market all over the nation through GST allows the free

flow of input tax credit from one state to another. India has dual-GST model whereby

both center and state governments have the power to levy and collect taxes in

accordance with their legislations. The glaring regularity of GST is collecting and

bringing all indirect taxes under one ceiling, hence making India a single market place.

The GST levied by the center over intra-state supply of goods is known as Central

Goods and Services Tax (CGST) and the tax levied by the states is known as State Goods

Services Tax (SGST). Another form of GST is known as Integrated Goods and Services

Tax (IGST) over interstate supply of goods and the same is charged and administered

by government at the center.

The operations of filing GST can only be done by a registered person. This person can

charge and collect on taxable goods and services supply. GST is charged on the selling

price of the goods or services. Before making the submission of GST to the

government, this registered person deducts the GST paid on the input (input tax) from

the amount of GST paid (output tax) by the registered person.

Components of GST

A total of four types of taxes are levied under GST which are explained as follows:


Introduction

3

CGST is a value added tax which is levied on intra-state supplies. Tax flow from

businesses to the central government. SGST accompanies CGST but the same is not

applicable on alcohol for consumption by humans, petroleum products and electricity.

SGST is a tax levied and collected by state governments over intra-state supplies. The

same is accompanied with CGST. Alcohol, petroleum products and electricity are again

out of the reach of SGST. SGST is charged on transaction value of the goods and

services which the price is paid for supply of goods and services.

Further, the liability to pay SGST shall arise at the time of supply of goods or services

as specified in section 12 and 13 of the SGST Act. The CGST portion will also be levied

on the same intra-state supply of goods. But CGST will be governed by the CGST Act,

2017.

IGST Integrated goods and services tax are levied and collected by the central

government and state government both on the inter-state supply in the goods and

services. Same like CGST and SGST, alcohol for consumption by humans, petroleum

products and electricity are exempted. The amount charged under IGST goes to the

center government.

Intra state supply of goods and services is movement of goods and services when the

supplier and the consumer are in the same state or union territory. Both CGST and

SGST is levied in this case and duly collected by the central government and state

government respectively.

Figure: 1.1 Components of GST



The whole agenda behind introducing GST is to boost up the economy of the country

at the same time to facilitate ease of doing business. Earlier, various challenges and

difficulties were in upfront with the government to ease out the tax difficulties and at

the same intruders and tax evaders were making it hard to for the government to

disable the loopholes in the system. GST models all over the world have proven track

record that this tax system increases the revenue for the government and flourish the

overall business world. However, there are various apprehensions related to

application of GST tax reforms and its effects on Indian economy which are required

to be assessed and thus, opens the rationale of study. The new tax structure-GST is

popular for its transparency, easy administration and above all the puller of economic

growth.

(Source: https:/cleartax.in/GST)

Figure 1.2 Indirect Taxes replace under GST regime

Undoubtedly, the impact of GST has been beneficial, transformational and came up as

an opportunity for businesses to reimagine their business models, commercial


Introduction

5

relationships, costing compliances, supply chain, processes and to make desired

changes in accordance with GST system that suits their organizations. Impact of GST

is visible at every transactional level of operations and thus, the need is to access the

impact of GST at each minute level with the objective to draw inferences. Emergence

of GST replaced the previous indirect tax system and brought the GST tax slab rate as

follows. However, items under these slabs keeps on changing and move from one slab

to another as and when the need arise and appreciated by the GST Council.

Figure: 1.3 GST tax rate Slab

The GST is classified in four components as mentioned above (CGST, SGST, IGST and

UTGST). It has set rate classification according to the Essentiality of the GOOD to the

Luxury of it. The tax bracket is as follows:

0% on essential food and medicine, newspaper, Education, residential

accommodation.

0.25 % on Diamond and other precious stone.

3% on Gold, silver, Platinum

5% Common use items, sweets, restaurants services, Tour Operator services.

12% Frozen Meat, Dairy Product.

18% Standard rate for Goods and services.

28% Luxury and Sin goods such as Motor vehicle and Luxury Goods.

A few of the Commodities and services weren’t included in the GST are Petroleum,

Electricity and Alcohol for Human Consumption. All these mentioned commodities

and services will still follow the previous tax regime.



Tax system before GST

Before introducing GST, Indian tax system was divided under two major subheads

which were direct tax and indirect tax. While direct taxes are imposed and charged

from individuals and organizations by the government on the incomes and profits

respectively, Indirect taxes are levied on the organizations.

Figure 1.4: Indian taxation system before GST

To understand the various forms of indirect taxes in brief which were levied by the

government are as follows:

a) Sales Tax is a tax levied on sale of goods and services within the country. The seller

charges the same from the buyer and make submission of same to the

government. Sales tax was charged at both levels of the government, central and

state differing in names known as central sales tax and state sales tax.

b) Value Added Tax (VAT) is a multi-stages tax levied across various stages of supply

and production with credit given for tax already paid at each stage of its value

addition. It is pertinent to mention here that introduction of state VAT replaced

state sales tax.


Introduction

7

c) Excise Duty refers to the tax levied on goods and services manufactured within

the borders of the country. The items which are excisable are specified in the

central excise tariff act as being subjected to the duty of excise.

d) Customs Duty refers to the tax levied by the central government on the good

imported to India. The items on which custom duty is being levied are classified

under the customs tariff.

e) Service Tax was introduced in 1994. It is levied by the central government on

service providers on certain service transaction but the same is borne by

customers.

After repealing the previous tax system of indirect taxes and brining in the GST reforms

have effects in different ways on every sector and industry. The objective was ‘One

Nation, One Tax’ but certain apprehensions have been raised by the stakeholders and

the people of tourism and hospitality fraternity are no exception to it.

Tourism Industry

Tourism being the largest industry in the world plays a vital role in economic growth

and development across the countries. A large part of population all over the world

depends upon tourism and hospitality industry for earnings either through direct or

indirect engagement in tourism activities. According to world tourism and travel

council, travel and tourism is surging strong and above the global GDP. A steady

growth has been observed in tourism all over the world every year.

(Source: WTTC report 2019)

Figure 1.5: Impact of Tourism on Global Level



To have better understanding of tourism, UNWTO defined tourism as “Tourism

comprises the activities of persons traveling to and staying in places outside their usual

environment for not more than one consecutive year for leisure, business and other

purposes.” However, a distinction has been made between the term’s tourism and

travel. Tourism takes place when one moves out of her usual environment. This may

also include engagement in economic activity whereas in travel the clause of

engagement in economic activity remains silent. India is also being benefitted by the

unprecedented growth of tourism sector.

About Indian tourism and hospitality industry the latest data is revealing that the

industry is growing with the rate of 3.9%, contributing USD 8.8 trillion and 319 million

jobs to the world economy in 2018. A rapid increase of 5.2% is observed in FTAs-

foreign tourist arrivals during 2018 marking the numbers at 10.56 million. Foreign

exchange earnings also increased by 9.6% setting up a new mark at 1,94,892 crores.

Interestingly, the physical features of India, its cultural diversity and rich heritage

acted as a magnet for the international tourist but in recent years India is harnessing

its true potential by promoting and running certain schemes targeting particular

sectors. Examples SWADESH scheme and PRASAD scheme. Tourism infrastructure

development is also supporting the rise in MICE and corporate sector, adding

advantages in Indian tourism industry.

(Note: 1. PRASAD stands for Pilgrimage Rejuvenation and Spiritual Augmentation

Drive, a Scheme launched by the Union government of India in 2015 to achieve

Integrated development of spiritual destination in planned, prioritized and sustainable

manner.

2. SWADESH Darshan scheme was launched by the ministry of Tourism to develop

theme-based tourist circuits in the country. These tourist circuits will be developed on

the principles of high tourist value, competitiveness and sustainability in an integrated

manner.

3. MICE stand for Meetings, Incentives, Conferences and Exhibitions.

Advantage India


Introduction

9

India has become one of the most digitally advanced traveler nations in terms of the

number of tools being used for enhancing the experience of a journey. While the rising

income of the Middle class has ensured growth in Domestic and Outbound travel, a

diverse portfolio of Niche tourism product, launch of new policies to facilitate tourism

growth a melting pot of geographical diversities has attracted Foreign tourists. The

Advantage that India has is showcased below.

(Source: ibef.org)

Figure 1.6: Advantages of tourism in India

Escalating numbers of ambitious middle class and their increased disposable income

had made the tourism and hospitality industry a key driver of the economy. According

to India Brand Equity Foundation, “total contribution by travel and tourism sector to

India’s GDP is expected to increase from US$ 136.3 billion in 2015 to US$ 275.2 billion

in 2025”. India ranked third among 184 countries in terms of travel & tourism’s total

contribution to GDP in 2016. Travel and tourism is the third largest foreign exchange

earner for India. A sum of US$ 27.693 billion was earned under foreign exchange

through tourism during calendar year 2017. The employment in the sector is expected

to rise to 46.42 million by 2026. During calendar year 2017, 10.177 million foreign

tourists have arrived in India. The Government of India has set a target of 20 million

foreign tourist arrivals (FTAs) by 2020 and double the foreign exchange earnings as

well. It also accounts for the furthermost amount of FDI (Foreign Direct Investment),

a fact supported by the Ministry of Tourism report which is marked at a 32 percent

increase year-on-year, reaching US $2.278 billion as of April 2017. Moreover, with

business travel spending in India expected to increase by threefold (from US $30



million in 2015) by 2030, and that, international hotels and chains increasingly leaning

towards India as an investment hub, the hospitality industry looks all set to contribute

a major chunk to the country’s economy.

TOURISM AND HOSPITALITY

Market Size

Sector Composition

Key Trends

(Source: ibef.org)

Figure 1.7: Growth, trends and schemes of tourism and hospitality sector

Hospitality Sector

63

.73

67

.77

72

.74

79

.56

87

.17

91

.27

98

.17

19

4.6

9

0

50

100

150

200

250

2012 2013 2014 205 2016 2017 2018E 2028F

CAGR 7.23%

Note: E-Estimate F-Forecast

Direct Contribution of Tourism and Hospitality to GDP (US$ bn)

16

3.9

9

17

4.2

2

18

7.1

8

20

4.1

8

22

3.2

23

4.0

3

25

1.6

4

49

2.2

1

0

100

200

300

400

500

600

2012 2013 2014 205 2016 2017 2018E 2028F

CAGR 7.11%

Note: E-Estimate F-Forecast

Travel and Tourism's total Contribution to GDP (US$ bn)

5.4%

94.6%

Segment - Wise Revenue Share (2017)

Domestic Spending Foreign Visitor Spending

5.5%

94.5%

Expected Segment - Wise Revenue Share (2018)

Leisure Spending Business Spending

3.9

0

4.4

0

5.1

0

5.3

0

5.2

0

5.8

0

6.3

0

6.6

0

7.0

0

7.4

0

8.0

0

8.8

0

10

.20

8.4

0

20

.00

0.00

5.00

10.00

15.00

20.00

25.00

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

201

8*

202

0T

CAGR 7.11%

Note: 2018* - up to October 2018, 2018 T - Target

Segment - Wise Revenue Share (2017)

13

2.0

0

14

0.0

0

14

9.0

0

16

4.0

0

17

9.0

0

16

6.0

0

20

0.0

0

40

6.0

0

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

2012 2013 2014 2015 2016 2017 2018E 2028F

CAGR 7.11%

Note: E - Estimate, F - Forecast

Expected Segment - Wise Revenue Share (2028)


Introduction

11

The success of tourism industry depends upon its another crucial component which is

hospitality sector. How comfortable the stay of a tourist in a destination is, marks the

underline of success beneath tourism. Friendliness in host guest relationship, between

communities and tourists and the authentic experiences decides the repeat visit and

duration of stay in a destination. Considering this socio-cultural aspect based on

friendliness and comfortability of a tourist in a destination, there is one more aspect

that decides the duration of stay and repeat visit which is economic in nature. This

economic aspect deals with burden on the pocket of a tourist when it comes to paying

the tariff of hotels and taxes thereon. If these tariff and taxes are high in numbers then

the apprehensions states that their stay in India may get short, which will result in

drop of FEE’s and circulation of money in the market.

However, the five major factors behind the success of tourism in a destination are:

i. Attraction: A tourist attraction is a place which is visited by tourists for the

uniqueness, cultural value, historical significance, natural beauty, architecture

etc.

ii. Accessibility: Accessibility to the attraction is one of the major components for

development of tourism. Air travel, Railways, Road connectivity, Ferry are part

of it.

iii. Amenities: Services that are required to meet the needs of tourist when he is

at the destination. These services are public toilets, visitor centers, malls,

restaurants etc.

iv. Activities: Activities compliment a destination i.e. a beach destination will be

complimented by activities such as wind surfing and many water sport

activities.

v. Accommodation: All destinations need accommodation facilities nearby,

otherwise the tourists will never prefer such a place as their destination.



Figure 1.8: The 5 A’s of Tourism

Undoubtedly, out of the five A’s mentioned above, duration of stay depends upon the

accommodation sector of hotel and hospitality sector of the tourism industry. The

accommodation sector consists of hotels and motels, apartments, camps, guest

houses, bed and breakfast, house boats, resorts etc. Taxation in accommodation

sector and the decision of applying GST as per slab mechanism in hotels and similar

based on the tariff raised a lot of apprehensions but the same are required to be look

into and demands sincere investigation on the effects of GST on accommodation

tariffs of hotel industry in comparison to other countries as well.

Taxation in Tourism and Hospitality Industry

The tourism and hospitality industry fall under the direct purview of GST and thus, is

liable to pay taxes. During the time of VAT various taxes have been levied on the

tourist or the user of hotels in the name of luxury tax, VAT and service tax. After the

introduction of GST in this sector and wrapping off of other indirect taxes, a strong

prediction was made that both tourism and hospitality (Hotel/accommodation) would

benefit. This prediction has basis of reduction in cost borne by customers, harmonizing

the taxes, reducing business transaction.

Under GST all the tourism services are charged at the rate of 5%. However, the

accommodation part which is the hospitality sector is segregated in brackets on the

basis of room tariff. Post 31st July 2017 the GST rates applied were as follow:


Introduction

13

Tariff GST Rates

</ INR 1000 No Tax

INR 1000 – 2499.99 12% GST

INR 2500 – 7499.99 18% GST

INR 7500 and above 28% GST

Table 1.1: Tax slab on Accommodation tariff (Post 31st July 2017)

However, after the 37th GST council meeting held on September 20th, 2019 the

formation of rates in the brackets is changed. For room tariff above INR 7500 earlier

the tax rate was 28% which is slashed down to 18%. For room tariff above INR 1000

to 7500 the tax rate is no more 18% instead it is being slashed down to 12%.

Tariff GST Rates

</ INR 1000 No Tax

INR 1000 – 7499.99 12% GST

INR7500 and above 18% GST

Table 1.2: Tax slab on Accommodation tariff (Post 20th September 2019)

There are certain pros and cons of introducing GST in tourism and hospitality industry

but the same can be treated as similar in other industries as well.

Figure 1.9: Pros and Cons of GST

PROS

Administrative Ease

Clarity for Consumers

Improved Quality Service

Availability of Input Tax

CONS

Increased Technological Burden

Increased Costs

Lack of Parity with Asia Counterparts



Some of the identified pros and cons are as follows:

In any case, introduction of GST in Indian economy as tax reform can be a game

changer moment. Undoubtedly, the ease of doing business has enhanced but to gain

the understanding of the ground level impact of GST in hospitality sector particularly

hotels a deeper and sincere effort is the need of time. Along with the apprehensions

certain positive impacts have also been noticed creating a paradox in understanding

the effects of GST.

Paradox of impact of GST and Hospitality Sector (Hotels)

The very potential of tourism and hospitality industry is immense and has way better

picture in comparison to other industries while contributing in the economy of the

country. Earlier multiple cascading taxes such as VAT, service tax and luxury tax etc.

were acting as hurdles in growth of the industry by reducing the profits and by

increasing the operational cost. Undoubtedly, arrival of GST in hospitality sector has

lessened up the burden of paying multiple taxes charged at different rates in different

states.

It would not be wrong to state that GST is transformational in nature and impacting

business and operations at the transactional level. Interestingly, the positive impacts

of GST such as administrative ease, clarity for customers, enhanced quality of service

are points worth to note but at the same time certain limitations such as technological

burden in not so technological population base, increased operational cost and most

importantly disparity among Asian counterparts is what is said to be badly hitting the

industry.

The problem is industry on various platforms has expressed its concern that because

of GST a sharp decline is evident in reservations in hotels. The tax structure under GST

which is unclear and constantly changing in not a perfect marriage between tax

structure and proposed visit plans of tourist to India. In comparison to Asian

counterparts, India may have to lose business on account of unclear and tax disparity.

Asian counterparts in this case may have competitive edge over India in terms of

taking away the business prospects from India.


Introduction

15

However, even after considering all the negative shades of GST and apprehensions

and concerns expressed by industry over various platforms, the statistics is revealing

a different and contrasting story. The statistics is narrating the increased annual

growth of foreign tourist arrivals by 9.7% and contribution to Foreign Exchange

Earnings by 14.5% in INR. Therefore, it becomes imperative to study the impact of GST

on the hotel industry. Another agenda is to investigate if India is losing its business

against its Asian counterparts on the ground of taxation issues. By this a very

important fact can also emerge which is availability/unavailability of the rooms in the

accommodation sector influencing the fate of Indian hotel industry.

For budget travelers GST is bringing smiles on the faces as through GST they are saving

their money and at the same time it is easier for them to understand the tax system.

For the luxury or high-end travelers, GST may act as set back as this segment of

travelers have to loosen their pockets. A room night at most luxury hotels is priced at

an average of INR 10,000 which is USD 155 onwards and above. The higher the price

and taxes the more will be the cut down in duration of stay or even no bookings at all

is a reality or hoax with another underlining factor is required to be determined.

With all these concerns, IITTM proposes to undertake study on impact of taxes on

tariffs / investments on the hotel industry. The related area will also be the part of the

study.

Term of reference

The terms of reference remain as follows:

To understand

1. Effect of taxation/ incentives on accommodation tariffs/ investments patterns in

the hotel industry.

2. The proportion/ ratio of taxation on classified/ unclassified hotels vis-à-vis other

countries.

3. The Competitiveness of India vis-à-vis its competitors in South East Asia and Asia

Pacific in terms of accommodation tariffs.



4. How many hotels/conventions centres etc. have availed the benefits of the

incentive of being in the Harmonized list of sub-sectors.

5. The effect of taxation/incentives on restaurants.


Literature Review

17

2. Literature Review

Tourism has become an essential strategy for local development in many

underdeveloped and developing economies. Since its rise after the Second World War;

growth in tourism has had a significant impact also on impoverished communities

where development options are less than limited. Tourism has bettered the livelihood

of many and has earned its title as Poverty Alleviator.

While many see tourism as Poverty Alleviator, Economy development tool,

Employment generator; many opine that Tourism while contributing economically, its

development leads to environmental and Cultural degradation (Yang, 2015).

As per UNWTO “Tourism comprises the activities of persons travelling to and staying

in places outside their usual environment for not more than one consecutive year for

leisure, business and other purposes.”

Tourism is different from travel. Tourism takes place when an individual displaces via

any means of transportation to a new place and engages in economic activity. There

are three criteria which are used to characterize a trip as tourism.

Displacement outside the Usual Environment.

The travel must occur for a purpose which engages an individual in economic

activity within the place visited.

An individual must come back to his/ her usual place of dwelling before the

completion of 365 days (tugberkugurlu.com, 2019).

Over the decades, the tourism sector has shown continued growth and has diversified

itself and has become one of the fastest-growing and job-generating sectors in the

world. Modern Tourism is linked with socio-economic progress and the growing

number of new Destinations.

The present scenario is such that the business provided tourism rivals with oil exports,

automobiles or food products. Post World War II Tourism has become one of the

major players in the world economy, responsible for generation innumerable job

opportunities and being the significant contributors in many developing countries



GDP. The increasing importance of tourism has also led to healthy competition

between destinations.

Sectors such as automobiles, agriculture, etc. have also reaped the benefits of growing

tourism in any country

Role of Tourism in an Economy:

Tourism has become the fourth largest export industry after fuel, chemicals and food.

Total export earnings from international tourism grew by 4% in real terms in 2018.

The tourism is rightly seen as a key driver of social and economic development, job

creation and equality”, (UNWTO 2019).

In recent years the role of Tourism has been ever developing in the economic

development of a country, and it has also become the center point of study and

research. Tourism is also termed as a torchbearer in the social progress and widening

the cultural contacts throughout human history. Past 50 years, the world has

witnessed the contribution of Tourism towards economic growth and hence has been

widely accepted by many developing nations for sustainable development. Massive

investment continues to pour in its development (Das, 2019).

On a global level, the annual analysis of quantifying the global economic and

employment impact by travel and tourism in 185 Countries and 25 regions was done

by The World Travel & Tourism Council in 2018. The report indicates that in that year,

the tourism sector accounted for 10.4 % of Global GDP and 319 Million Jobs (10 %).

The Leisure markets accounted for 78.5% of the market, and the Business spend was

at 21.5 % (WTTC, 2019).

Tourism has stimulated Economic growth in many sectors. For instance, tourism

contributes to increasing foreign direct investment which helps in the economy of that

country. Moreover, tourism also stimulates investment in new infrastructure, human

capital, increases competition; this exhibits a multiplier effect. Hence, Tourism has led

to an exponential rise and development in the Hospitality Sector.

Success Factors for a Tourism Destination

A wide range of factors can influence the success of tourism at any Destination; as

discussed earlier, the Unity of these five core factors plays a vital role:


Literature Review

19

1. Attraction

2. Accessibility

3. Amenities

4. Activities

5. Accommodation

The accommodation sector, along with Attraction and Accessibility are the backbone

of the Tourism industry. It provides the opportunity for visitors to stay for a length of

time to enjoy the locality and its attractions, while their spending contributes to the

local economy. Accommodation forms a base for the tourist’s exploration of the urban

and non-urban environments.

The Accommodation sector is too dependent on the below-mentioned factors for its

success:

Accommodation (Hotels) Food (Restaurants &

in room dining)

Beverage (Served in

Restaurants and Hotels)

Average Room Rate Cost of sales ratio Cost of sales ratio

Bedroom Occupancy Rate Gross Profit ratio Gross Profit ratio

Revenue per Available Room Average spend per

customer

Average spend per

customer

Cost per occupied room Labour cost ratio Labour cost ratio

Labour Cost ratio

Source: Failte, (2013)

Fig:2.1: Indicators to determine success

According to Qu, Xu, and Tan (2002), hotel room price has a significant effect on the

demand for rooms. Tsai, Kang, Yeh, and Suh (2005) further found that the hotel room

demand is positively related to the consumer price index (CPI). That is, hotel room

price possesses a relative quality, compared to general goods and services, which may

either stimulate or deaden the hotel room demand.

Tourism expenditures are sensitive to the price changes, as the increase in taxes will

reduce tourism expenditures. An improvement in the price competitiveness may be



achieved by a reduction in the rates of taxes so long as the tourism businesses respond

to the tax reduction by decreasing the prices (Durbarry & Sinclair 2001).

First of all, higher taxation discourages tourist activity Second of all, larger taxation

than in other countries determines the decrease of respective country amenity as a

destination for foreign tourists. The majority of the tourist accommodation providers

are small-sized. The big companies are not very numerous. Therefore, the taxation of

small entities is important also for the state and for the contributors (Pacurari, D.

2012).

Taxation in the Hospitality Industry

The Study of Deloitte and Touche (1998) showed that higher tax burden reduces

hotels and tourism revenues, while the increase or decrease of tax rate significantly

influences the decisions of the tourists regarding the destination of a voyage and the

way and means of accommodation. In other words, because of mobility, information

and sensitivities to prices, tourists very often select the destination having in mind the

prices required by providers of accommodation and catering. Due to all mentioned,

the hotel industry in any observed country has an aim to achieve a more favourable

position in comparison to its competition and one of the ways how to make it is to

provide encouraging taxing of tourist services and hotel industry. As a result, many

countries in recent years introduced, reduced and/ or redesigned a whole scope of tax

forms that are intended for the hotel industry and tourism (WTTC Taxation Policy Task

Force Case Studies, 2004).

Azmi et.al (2016) in a study conducted in Malaysia argue that GST is a fair tax system

because it is distributes the tax burdens among the wider population groups based on

the amount of use as well as define the types and quantum of tax that is payable to

the consumer for good and services they use. GST benefits government since it

enhances the capability, effectiveness and tax administration transparency.

Hotel Industry and tourism are significant factors of competitiveness abilities and

development of any country.

Chauhan (2019), in his study in India, concluded that earlier, the food and beverage

industry was reeling under the cascading effect of the previous taxation regime. And


Literature Review

21

after the implementation of GST, these organisations were the biggest beneficiaries

in the hospitality industry. It was found that budget hotel benefitted the most in GST

regime and the Hotels falling under the tax bracket of 18-28% were at the blunt end

of it (Chauhan, P. H. 2019)

Blake (2000) in a study conducted in Spain considered policy changes about tourism

taxation. Results of this study indicated that VAT exemption for accommodation has

a negative welfare effect while an increase in accommodation tax has a positive

welfare effect.

Tourism and Hospitality in India:

The Tourism and Hospitality industry of India has been one of the key drivers of growth

among the services sectors. Rich Culture, heritage, biodiversity, varied topography is

what India has to offer; tourism is also a huge employment generator besides being a

significant source of foreign exchange for the country. The rapid growth of tourism

around the globe has caught the attention of the governments on tourism and have

started looking at tourism as a source of taxation revenue.

Contribution of the Hospitality Industry to Indian Economy:

The Indian Hospitality Industry has been detrimental to the growth of the Tourism

sector and vice versa. Tourism Industry has been contributing 9 % in the National GDP.

The advent of e-visa for foreign tourists has also helped the demand (6.8%) has been

continuously outpacing supply (3%) growth in India. Within the Tourism Sector,

Hospitality Industry has been the Star Performer; revenue, Employment and

Development wise.

According to the Economic Survey of India and Techno Pak, the Indian Hotel Industry

had accounted for USD 19 Billion, out of which the unorganized Hospitality industry

accounted for almost 71.50%.

Taxation on Accommodation sector in India

GST is a significant step in the field of indirect taxation. The cascading and double

taxation effects can be reduced by combing central and state taxes (Poonam, 2017)

Poonam (2017), in her study, concluded that GST would be an important step in field

taxation, as the cascading effect of tax is reduced.



Jasim (2017) in his study, mentioned that the Hotel Industry in the south of India has

agreed that most of the Budgeted 3- and 4-star properties have had a positive impact

and less Negative. The food and beverage sector had all the components to inflate the

bill by 30-35% but introduction of single slab will benefit the consumers.

Jonathan (2017) in his study has stated that Liquor should be included in GST as

exempting it beats the purpose of One Nation One tax.

The attempt has been made to appraise possible implications of GST on

accommodation sector in India. There is no absolute reason or objection to the

introduction of GST and the studies of the impact of taxes are inconclusive. The critical

issue is likely stakeholders’ responses to such a tax. Established industry and other

interests argue that various forms of taxation already discourage visitors relative to

other destinations, but these claims are at best ambiguous and require serious

research investigation.


Research Design

23

3. Research Design

This study was commissioned for the project tilted ‘Assessing Impact of taxation/

incentive on accommodation tariffs of the hotel industry in India vis-à-vis other

countries’

The terms of reference to be considered for study remained as follows:


the hotel industry


countries.


Pacific in terms of accommodation tariffs


incentive of being in the Harmonized list of sub-sectors

5. The effect of taxation/incentives on restaurants

Introduction

The research team started this project exploring and identifying the variables which

were used to develop foundational factors for the questions, further, used in this

research. It was necessary to talk to every concerned stakeholder in the industry to

get a better understanding of the Impact of GST. Thus, the team visited numerous

places and had words with Hoteliers, Travel Agents/ Tour Operators and Tourists.

Researchers had asked questions to Hoteliers, Travel Agents and Tourists like ‘What is

your opinion on GST’ and similar other questions were asked verbally & informally to

identify some significant factors in this matter.

Subsequently, the research team noticed some standard variables like the following:

Effect of GST on businesses

Tourist’s Viewpoint on GST while paying for tourist products & services

Impact of GST on sales

The Segments of tourist who are more concerned about GST & Bills,

Factors responsible for increased online sales



And various common suggestions for further improvement in the GST system

Research gaps identified in the proposed field of investigation

The significant research gap which the research team found before starting the study

was the dilemma in the market/ stakeholders/ individuals associated directly or

indirectly with tourism and hospitality business. There was a shortage of reasons

identified based on logical and systematic investigation, and the market was full of

speculations regarding the Impact of GST on the tourism and hospitality sector,

particularly on the Hotel sector.

The issues about the stakeholders of the tourism and hospitality industry were

required to be solved. Still, the significant gap was the availability of solutions to these

issues based on rational arguments. No such study was conducted to measure the

effects and assessing the impact of GST on the hospitality and tourism sector in India

after the implementation of GST. Thus, this study lays a strong foundation as the same

is focused on identifying, analyses and recommended versions of reasons that can

solve a lot of issues faced by the industry people at the same time it will lead to better

prospects of the industry in the light of GST.

Research design

S No. Objective Methodology

1 To ascertain the effect of

taxation/incentives on

accommodation tariffs/

investments patterns in hotel

industry.

Interviews have been conducted to understand the

ideologies of the stakeholders. Multiple reasons

were further developed based on the rational facts

obtained after interviews. Questionnaires and

schedules were used for collecting the data.

2 To identify the proportion/

ratio of taxation on classified/

unclassified hotels vis-à-vis

other countries.

Secondary data sources have supported this

objective.


Research Design

25

S No. Objective Methodology

3 To ascertain the

Competitiveness of India vis-à-

vis its competitors in South

East Asia and Asia Pacific in

terms of accommodation

tariffs.

Data was collected from secondary sources

considering the websites of tourism boards/

ministries and then comparison was drawn to check

the competitiveness. The competitive-ness index

developed by World Economic Forum was also

referred.

4 To identify the number of

hotels/ conventions centers/

etc. have availed the benefits

of the incentive of being in the

Harmonized list of sub sectors.

Data was collected from secondary sources and

harmonised list was refereed before reaching the

conclusion.

5 To analyze the effect of

taxation on restaurants.

Opinions of various restaurants owners/ managers

have been collected through interviews.

Table 3.1: Research methodology for each objective

Sampling design

The study was undertaken in prominent tourism states of India with hoteliers, tour

operators/ travel agents and tourists. The sampling plan was of two stages-

i. Stratified Random Sampling

ii. Judgmental Sampling

Population

The population for the study included:

a) Hoteliers: 3, 4 and 5 Star Category, Heritage, Home Stays etc.

b) Tour Operators/ travel agents: Inbound and Outbound

c) Tourists: Domestic and International

d) Restaurant owners

The researcher team had ensured sufficient response from all the respondents. Be it

Star category hotelier or heritage hotel, or Inbound or Outbound tour operators. Even

the reactions from both the tourists domestic and international were also taken.



Sampling technique

In the current study research team selected the mode of data collection based on the

objectives of the study and type of data required. As many variables needed to be

explored, the current study required a self-administered questionnaire. As the

targeted audience of the survey were hoteliers, tour operator/ travel agent and

tourists, telephonic interview was not possible because of lack of data, unavailability

of contact details and the type of question being asked. Moreover, the target

respondents being prominent hoteliers, tourists and travel agent it’s challenging to

mail them the questionnaire and seek response as data was not available and even

there is a tendency to discard such mails by respondents. The mail interview method

is not accessible in developing countries, as the postal addresses of all the respondents

were not available.

The frequent method of collecting data was through personal interviews conducted

by the research team members.

Stratified random sampling was used to manage the data for empirical testing. Along

with this several interviews of hoteliers/restaurant managers/travel agents/other

stakeholders have been conducted for this study.

Sample size used

A total of 85 hoteliers, 46 travel agents and 142 tourists were contacted directly.

Restaurants too were considered for taking their opinion under the reference term 6.

More than 80 restaurants were reached for this purpose.

Period of sampling

The period of sampling remains from May 2018 to October 2019

Tools for data analysis

The Data was collected through primary and secondary sources. Questionnaires and

Schedules were created for the Data Collection. Techniques used for Data Collection

were stratified random samplings. After that Data was collected using schedule

personal interviews, mostly questionnaires were filled by a number of Hoteliers and

Travel Agents using mentioned data collection methods & techniques.


Research Design

27

Data was also collected through secondary sources as well, and the same was also

verified using empirical testing. After the collection of data, it was tabulated and

explained using charts and graphs. Finally, Charts and Graphs were analyzed to find

causes & solutions.

It was apparent to see that both Travel Agents & Hoteliers’ told that there is a

significant impact of GST on their businesses. Both Travel Agents and Hoteliers said

that after implementation of GST their Walk-In customer footfall had decreased.

Might be because of the confusion regarding tax rates and generally, tourists were

concerned about GST rates.

Limitations of the study

Although the research was carefully done, there were some unavoidable limitations.

Sample size

The sample did not adequately represent tourists who at times visit a monument or

city as a day visitor or accommodate at their relatives.

Lack of available/ reliable Data

For some terms of reference Primary data was collected for this research. Research

team personally collected the majority of data. However, some data was collected

through research associates. The research associates were trained to eliminate any

chances of error in data collection. Yet, some error in data might have inadvertently

come in.

Lack of prior research studies on the topic

Efforts of the research team were also limited by the fact that there was no earlier

research study on GST. Non-availability of prior data was also identified the research

gap that necessitated this research.

Frequent changes in the GST regulations during the study

Ever since the GST has been implemented, there have been changes in its policy at

frequent intervals. The time from which the study started had very different GST



guidelines for implementation for Hotels and Restaurants. It was, in fact, complicated

in terms of implementing GST because of ambiguity in its guidelines. But as time

passed by, many new favourable directions took the earlier complicated instructions

which made the researchers redo their survey again. Almost towards the end, the

latest guidelines have made the entire process better, which led to the high

acceptance of GST by the industry. Yet there were few points need to be noted which

the team has highlighted in their studies.


Findings and Data Analysis

29

4. Findings and Data Analysis

Introduction

Completing a research successfully requires a very good data analysis. Data Analysis is

very important to draw inference or conclusion form the collected data. The data

collected by the research team from hoteliers, tour operator/ travel agent and tourists

were passed in Microsoft excel. The data was then analysed and interpreted in forms of

graphs and figures. Analysis was done for all the three major respondents i.e. hoteliers,

tour operator/ travel agent and tourist.

Terms of References


the hotel industry


countries.


Pacific in terms of accommodation tariffs


incentive of being in the Harmonized list of sub-sectors

5. The effect of taxation/incentives on restaurants

4.1 1st Term of Reference: Effect of taxation/ incentives on accommodation

tariffs/ investments patterns in the hotel industry

Earlier tourism and travel was a luxury for many individuals across the globe. They

would choose travelling, a luxury, after fulfilling their basic needs. Thus, it was argued

that luxury should be more heavily taxed than necessities (Forsyth and Dwyer 2002).

But today the same luxury has become a necessity for many. People save a portion of

their money for travel. Tourism and travel have become less expensive because of the

increase in supply-side and excess of competitions. Therefore, it has entered the stage

of competitiveness whereby people are consuming the same in high frequency.

Destinations, tour operators, travel agents, hotels and other forms of accommodation

and transportation all are competing with each other adopting the measures of



aggressive marketing and cost-based pricing. The wholesome journey of tourism and

travel has covered a long way from luxury to necessity.

As mentioned in earlier chapters, the wheels of the travel industry are transportation

and accommodation. Since accommodation contributes effectively to tourism

development, it is logical that the pricing of this sector should carefully be done.

Accommodation rates influence one’s decision on the duration of stay of a tourist at

a destination. If offered at lesser or competitive prices in comparison to other

international destinations, the same can increase the occupancy and hence impact the

growth of that industry positively as it is very well evident that taxes form an integral

part of pricing. Any unreasonable imposition of tax as compared to their competitive

destination can lead to the gradual untimely demise of the industry.

Realizing the importance of taxation and incentives on the growth of the

accommodation sector, it makes sense to establish the relationship between the two.

Further, a viable future of industry also invites suitable investments for itself. Based

on the importance of the study, we set the terms for the first term of reference.

The first term of reference focusses on two major points:

1. The impact of incentives by the government on investment patterns.

2. The effect of taxation on accommodation tariff pattern in hotel industry.

Impact of incentives on investment patterns

The recent statistics reveal that the growth in tourism is very promising even though

there is a slight slump in recent years. Since the overall growth of tourism is on an

increasing trend, it appears that a wiser investment in this industry will take economic

prosperity to a higher level. Tourism has always been an employment generator, GDP

contributor etc., hence careful policy decisions for its growth will have a far-reaching

effect. The government of India has taken up several initiatives to boost investment

in the Hospitality Sector. In budget 2007-08, tax incentives were provided for hotels

coming up before the Commonwealth Games in the NCR Region. Besides, in the

budget 2009-10, tax exemptions were also extended to hotels coming up at

destinations having the world heritage sites. The Financial Incentive provided is a Tax

Holiday for the initial five years from the start of operations of the hotels. Under



31

Export Promotion Capital Goods (EPCG) scheme, administered in India by the

Directorate General of Foreign Trade, Ministry of Commerce and Industry, customs

duty was levied on import of capital goods for a hotel in India at a concessional rate

of 3%. Post GST this is now subject to certain conditions. It is an understood fact that

Foreign Direct Investment (FDI) has always been a key to faster growth and

development given its potential to increase productivity, generate employment

opportunities, expansion of infrastructure facilities and development of domestic

competitiveness. The Indian government has to undertake several financial and fiscal

reforms to attract foreign investors. Till 2015 the figures revealed by Department of

Industrial Policy and Promotion (DIPP), the Hotel and Tourism industry is occupying

3.28% share of the total FDI equity inflows:

Figure 4.1.1: FDI equity inflow in Hotel & Tourism sector

As depicted in the table, a lot of volatility has been observed in the annual FDI inflows

in Hotel & Tourism Sector during the period 2000-01 to 2016-17.

In its recent attempts and response to the long-standing industry demand of the

hospitality industry, the ministry is working on a proposal to grant infrastructure

status to the industry. This status will give a boost to low and mid-level segments of

hotels in terms of easy access to long term funding and a lower rate of interest.

The study conducted by Mott McDonald revealed that the number of hotels in NCR

has almost doubled in the past decade (2000-10). This increase in the number of hotels

13

.2

32

.12

33

.75

49

.36

37

.01

71

.78

19

5.6

6

42

1.4

7

46

3.9

2

75

3.0

2

30

8.0

5 99

2.8

6

32

59

.05

48

6.3

8

77

7.0

1 13

32

.69

91

6.1

3

0

500

1000

1500

2000

2500

3000

3500

In U

S$ m

illio

n

Year

Hotel & Tourism



could be attributed to the growth in demand for star category hotels in this period

due to the upcoming Commonwealth Games and the increase in the prominence of

NCR for industrial and commercial purposes.

Figure 4.1.2: Growth of new hotels in NCR

Accommodation Sector

The Accommodation Sector comprises of, Bed and Breakfast, Hotels, Motels, Flotels,

Inns, Resorts, Hostels, Homestays, Airbnb etc. All these Hotels are well defined and

organized. There are different types of Hotels which are categorized in terms of star

category. These star ratings are given according to the kind of services that are

provided by the hotel. A Hotel Ranges from 5 Star category as the Highest to 1 as being

the Lowest. Their Tariff too differs depending on their star category. The taxes are not

levied considering the classification as per the star categories, but the same is being

charged viewing various brackets and as per the tariff rates.

Average Tariff of hotel rooms in India

Average daily rate or Tariff is calculated by taking the average revenue generated from

rooms and dividing it by number of rooms sold. As depicted in the figure, the average

daily Tariff in India has seen a downward trend representing its competitiveness with

the existing tourism world.

0

20

40

60

80

100

120

50 52 56 5661 63 65 69

75

92102

No

. of

Ho

tels

Year



33

Source: Statista, Inc., U.S.

Figure 4.1.3: Average tariff hotel rooms in India (in USD) from the Financial Year 2001-2018

Effects of Taxation

Travel destinations usually levy taxes on hotel rooms for the services availed by the

tourist or a guest. This revenue generated through these taxes is used for investments

in public welfare. However, the stakeholders of the tourism industry have a negative

notion towards taxation in the tourism and hospitality industry as they believe that

Tax harms the industry, which is not a luxury anymore by impacting its revenue. In

contrast, in the study of (Bonham, Fujii, Im, &Mak, 1992) conducted in the famous

American destination ‘Hawaii’; it was found that the overall effect of Tax on the net

rental receipts was about 1 per cent, which is not that great of a difference. Instead,

it was noted that Tax on Hotel helped the state to raise a substantial amount of tax

revenue.

In the Pre GST era, the Hospitality Industry levied several taxes of the state

Governments and central governments. State government levied taxes like VAT,

Luxury tax, Entertainment Tax etc. and that the Centre Government levied taxes like

Service Tax, Excise Tax, Customs Duty etc. It was finally the customer who had to suffer

the burden of multiple taxes owing to its cascading taxation system. With the onset of

GST in 2017, all the taxes levied on the Hospitality sector were brought under the

umbrella of one tax which is GST tax. The differential tax pattern in hotels was

0

50

100

150

200

20

01

20

02

20

03

200

4

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

8373 68

7896

122

162

199

168

136143126

10692 90 85 85 89

Ave

rage

Dai

ly r

ate

in U

S$

Financial Year



enforced based on tariffs set by the hotels. At present, the Tax levied shall be on the

declared Tariff. “Declared tariff includes charges for all amenities provided in the unit

of accommodation (given on rent for stay) like furniture, air conditioner, refrigerators

or any other amenities, but without excluding any discount offered on the published

charges for such unit.”

The following tables depict the tax structure proposed earlier to the on the present as

on date:

Realised amount per room/person per night GST Rates

Less than Rs.1,000 0%

Rs.1,000 – Rs.2,499 12%

Rs.2,500 – Rs.7,499 18%

Rs.7,500 and above 28%

Table 4.1.1: Exhibiting GST Tax Slab of Hotel Segment (Since 01-07-2017)

Nature of

Service Particulars

Taxable

Amount Tax Rate

Hotel

Accommodation

Value of

Room Rental

Upto Rs. 1000 0%

Between Rs.

1001 & Rs.

7500

12%

Rs. 7501 &

Above 18%

Table 4.1.2 Present GST tax slab of hotel segment

However, the revisions, improvements and efforts of government by continuously

changing the tax slabs of GST for hospitality indeed provided relief to stakeholders,

particularly to hotel owners. Hoteliers have welcomed the recent step taken by GST

council by lowering down the bracket from 28% to 18%. However, the expectations of

the stakeholders are always more from the government in the form of providing

incentives. The statement of IATO chair on these improvements has further

emphasized infrastructure development, lower tax burden and ease of rules.



35

A primary survey was also conducted to understand the effect of taxation/incentives

on accommodation tariffs/investments patterns in the hotel industry. The data was

gathered through direct interviews and emailing. Following is the depiction of data

from the responses received.

1. Has GST effected your business?

S No. Respondents Total No. of respondents Responses

Yes No

1. Hoteliers 85 57 28

2. Travel Agents 46 33 13

Table 4.1.3: Effect of GST on Business

Figure 4.1.4: Effect of GST on Business

The question “Has GST effected your business?” was asked to the Hoteliers and the

Travel Agents, while 67% of the Hoteliers responded that GST has affected their

business 33% said it (GST) has no effect on their business.

The same question was asked to the Travel agents out of whom 71% said GST has

effect on their business 29% said GST has no effect on their businesses.

The inclination by higher number of Hoteliers & Travel agents towards feeling ‘effect

of GST’ on their business was due to their changed tariff structures after the

implementation of Goods and Services Tax. The changed tariff structures has

somewhat effected their sales as observed by the research team. The observation was

0

20

40

60

Yes No

57

2833

13

No

. of

Res

po

nd

ents Hoteliers

Travel Agents



made on the basis of large number of deliberations happened with the hoteliers and

the Travel Agents.



37

2. Are GST rates a matter of concern for Tourists?

a. Corporate Clients


Yes No



3. Tourists 38 11 27

Table 4.1.4: GST rates a matter of concern for Corporate Tourists

Figure 4.1.5: GST rates a matter of concern for Corporate Tourists

The question “Are GST rates a matter of concern for Tourists?” was asked to Hoteliers,

Travel Agents and Tourists with regard to corporate clients or corporate tourists.

Therefore 68% of the Hoteliers responded that Corporate Tourists is not curious about

GST rates while 32% hoteliers said GST rates are the matter of concern for Corporate

Tourists. Similarly 65% of travel agent has said GST rates are not a matter of concern

for corporate tourists while 35% said it is a matter of concern for corporate tourists.

The same question was also asked to tourists, as reply 71% of them said GST rates are

not the matter of concern for corporate tourists and 29% said it is a matter of concern

for corporate tourists.

The research team observed on the basis of deliberations conducted with the number

of Hoteliers, Travel Agents and the Tourists that GST is not a matter of concern for the

corporate client or corporate tourist. It was apparent to know GST or the tariff

0

10

20

30

40

50

60

Yes No

27

58

16

30

11

27

No

. of

Res

po

nd

ents

Hoteliers

Travel Agents

Tourists



structure is not a matter of concern for corporate clients during the discussions with

the respondents. The only thing important for the corporate client was garnering bills

for whatever small or big payments they transact. The interest in collecting bills was

to get reimbursement from the organization they are working with. Hence, it was said

by the Hoteliers, Travel Agents and Tourists that GST rates are not a matter of concern

for the corporate tourist or the corporate client.

b. Leisure Tourists


Yes No



3. Tourists 104 83 21

Table 4.1.5: GST rates a matter of concern for Leisure Tourists

Figure 4.1.6: GST rates a matter of concern for Leisure Tourists

The question “Are GST rates a matter of concern for Tourists?” was asked to Hoteliers,

Travel agents and Tourists with regard to the Leisure tourists. The data tells that 75%

of Hoteliers said ‘Yes’ GST rates are matter of concern for Leisure tourists in Hotels,

25% Hoteliers said ‘No’ Leisure tourists are not concerned about GST rates. For the

same question 76% of Travels agents said ‘Yes’ GST rates are matter of concern for

Leisure tourists and 24% Travel agents said ‘No’ GST rates are not a matter of concern

for the Leisure Tourists. The Tourist’s responses were also collected for the same

0

20

40

60

80

100

Yes No

64

21

35

11

83

21

No

. of

Re

spo

nd

en

ts

Hoteliers

Travel Agents

Tourists



39

question, therefor, 79% of Tourists said GST rates are matter of concern for them

while 21% of Leisure tourists said GST rates are not a matter of concern for them.

The research team also observed on the basis of deliberations conducted with the

number of Hoteliers, Travel Agents and the Tourists that GST is a matter of concern

for the leisure tourist. It was apparent to know that GST or the tariff structure is a

matter of concern for the Leisure tourists, because, they was paying bills from their

own savings and they are never interested in paying a penny extra. Therefore, it was

said by the Hoteliers, Travel Agents and Tourists that GST rates are a matter of concern

for the Leisure tourist.

3. Do you see any effect of GST on the number of Walk-in customers in your hotel?

S No.

Respondents Total No. of respondents

Tax Slab Responses

Increase Decrease

1. Corporate

Client

16 No Tax 7 9

25 12% GST 11 14

30 18% GST 14 16

14 28% GST 6 8

2. Leisure Tourist

16 No Tax 8 8

25 12% GST 9 16

30 18% GST 8 22

14 28% GST 4 10

Table 4.1.6: Effect of GST on Walk-in Tourists in Hotels

Figure 4.1.7: Effect of GST on Walk-in Tourists in Hotels

0

5

10

15

20

25

No Tax 12%GST

18%GST

28%GST

No Tax 12%GST

18%GST

28%GST

16 25 30 14 16 25 30 14

Corporate Client Leisure Tourist

7

1114

68 9 8

4

9

1416

8 8

16

22

10

No

. of

Ho

telie

rs

Clients Type and Tax Slabs

Increase

Decrease



The question “Do you see any effect of GST on the number of Walk-in customers in

your hotel? Have they increased or decreased?” was asked to different type of

hoteliers. The hoteliers were differentiated on the basis of their Tax slab policies i.e.

No Tax, 12%, 18%, 28%. The Hotels charging ‘no tax’ from their guests, in terms of

corporate clients 56% said after GST implementation their Walk-In clients decreased

and Leisure tourist hotels data shows that 50% says after GST their Walk-In customer

increased other 50% says decreased. The Hotels with 12% GST, Corporate client Hotel

Data says 56% of Hoteliers feel their Walk-In customers decreased after GST and the

Leisure client hotel data shows that 64% of Hoteliers feel their Walk-In tourists

decreased. The Hotels with 18% GST rates, Corporates clients Hotels’ 53% Hoteliers

said their Walk-In clients decreased after GST implementation and Leisure Tourist

Hotel’s73% Hoteliers feel their walk-In customers has decreased after the GST

implementation. Similarly, the Hotels with 28% GST rates, Corporate Client Hotels’

57% Hoteliers said their Walk-In clients has decreased after the GST and the Leisure

Tourist Hotels’ 71% Hoteliers said their Walk-In sales decreased after GST

implementation.

The research team studied impact of GST on Walk-In customers through

deliberations& questionnaire filing with the number of Hoteliers differentiated on

different tax slab policies. It is visible in the Data and it was observed by the research

team that after the GST implementation both categories (Corporate & Leisure) at

different tax slab type hotels are feeling that their Walk-In sales has decreased.

4. Do you always generate bills for every transaction that you make?


Yes No



Table 4.1.7: Generating Bills for Every Transaction



41

Figure 4.1.8: Generating Bills for Every Transaction

The Hoteliers and Travel agents were asked the question “Do you always generate bills

for every transaction that you make?” accordingly data was gathered which shows

83% Hoteliers and 86% Travel agents confirmed that they always generate bills for

whatever transaction they get or make, respectively 17% and 14% agreed that they

do not always generate bills of monetary transactions.

It was observed by the research team that higher percentage of hoteliers & travel

agents had good habit of generating bills always. With regard to generating bills the

hoteliers & the travel agents had views that it show their clients they are professional,

it helps them run business easily & transparently, bills are best source of proof and

helps in defense at court cases, etc. They also said, “Generating bills also makes us

good entity in front of excise & taxation authorities”.

5. Do tourists generally ask to not generate the bills to save the GST?

S No. Respondents Total No. of respondents

Tourist Type Responses

Yes No

1. Hoteliers 85 Corporate Client 4 81

Leisure Tourist 70 15

2. Travel Agents 46 Corporate Client 3 43

Leisure Tourist 41 5

Table 4.1.8: Tourists ask to not to generate the bill to save GST

0

20

40

60

80

Yes No

71

14

40

6No

. of

Res

po

nd

ents

Hoteliers

Travel Agents



Figure 4.1.9: Tourists ask to not to generate the bill to save GST

The Hoteliers and Travel agents were asked the question “Do tourists generally ask to

not generate the bills to save the GST?” with respect to their corporate clients and

Leisure tourists. The Hoteliers said 95% of their corporate clients do not ask to not

generate bills while same hoteliers says 84% of their Leisure Tourists ask them to ‘Not’

generate bills so that they can save GST. The Travel agents said 93% of their corporate

clients do not ask for not generating bills while 89% of their Leisure tourists ask them

to not generate bills so that GST they can save the GST.

The research team observed that willingness to generate bills was higher among

corporate clients and mostly the Leisure tourists is less interested in generating bills.

Both the Hoteliers & the Travel agents agreed that the Leisure tourists generally ask

them to not to generate bills so that the tourists can save tax amount from their bills.

6. Do tourists prefer online booking, due to promotional/ discounted rates as GST

amount on online booking is lesser, in comparison to Direct/ Offline booking?


Yes No



Table 4.1.9: Preference of Online Booking

4

81

3

43

70

15

41

5

0

10

20

30

40

50

60

70

80

90

Yes No Yes No

Hoteliers Travel Agents

No

. of

Res

po

nd

ents

Respondents and Responses

Corporate Client

Leisure Tourist



43

Figure 4.1.10: Preference of Online Booking

The research team has also studied the preference of tourists towards online bookings

by asking the question “Do Tourists prefer online booking, due to promotional/

discounted rates as GST amount on online booking is lesser, In comparison to Direct/

Offline booking?” to Hoteliers and Travel agents. The Hoteliers’ responses data shows

that 82% of them say their clients prefer online bookings due to promotional/

discounted rates. The Travel agents’ responses data tells that 78% of their clients

prefer online booking due to promotional/ discounted rates.

The research team also studied the trend of online bookings in tourism arena. The

questionnaire filling & deliberations held with number of Hoteliers & Travel Agents to

know why their people are preferring bookings. Both the Hoteliers & the Travel Agents

said that tourists are preferring more of online bookings, their offline bookings fell

drastically and all the customer traffic is now moving towards online bookings

mediums. The research team also asked for ‘why’ this online shift happening therefore

it was observed that people are preferring online bookings due to higher discounts

offered by online intermediaries, the convenience provided by online intermediaries,

easy & reliable cancellation policies, etc. The observation was made on the basis of

large number of questionnaire filled &deliberations held with the hoteliers & the

Travel Agents.

7. Has the filing of GST return makes GST complicated?

0

20

40

60

80

Yes No

70

15

36

10

No

. of

Res

po

nd

ents

Resposes

Hoteliers

Travel Agents




Yes No



Table 4.1.10: Filing of GST return makes GST complicated

Figure 4.1.11: Filing of GST return makes GST complicated

The research team has studied the complicatedness of GST in relation to Hoteliers and

Travel Agents. The respondents were asked the question “Has the filing of GST return

makes GST complicated?”, therefore, 60% of Hoteliers find filing GST returns

complicated and 67% of Travel Agents feels filing GST returns is complicated

respectively 40% and 33% answered no complication in filing GST returns.

During deliberations with the Hoteliers & the Travel agents, the research team noticed

inconvenience or difficulty felt by stakeholders in filing GST return. Also high number

of Hoteliers & Travel agents marked for ‘Yes’ that they feel filing GST returns

complicated. Most of them were confused with state GST & central GST system. Some

said they feel difficulty in tax slabs system and the instant changes made by

government in GST slabs. Therefore, all the Hoteliers & the Travel agents felt need for

simpler and easier GST system.

0

20

40

60

Yes No

51

3431

15

No

. of

Res

po

nd

ents

Responses

Hoteliers

Travel Agents



45

4.2 2nd Term of Reference: The proportion/ ratio of taxation on classified/

unclassified hotels vis-à-vis other countries.

The Hospitality industry is the Spine of the tourism industry of any country. It provides

a base for tourists to engage in their activities at a given location. This Symbiotic

relation between Hospitality industry and tourism industry makes it inseparable.

Hospitality has grown through ages and its importance has reached for even a country

like India where it is treated as one of the significant foreign exchange grossers and

tax generators.

Its growth has been exponential in the recent years owing to growing middle class is

increasing disposable income of economies like India. The hospitality sector

encompasses wide variety of activities within the service sector and is a major job

provider both directly and indirectly. Needless to say, that the hotel industry

contributes to the overall tourism experience through the standard of facilities and

services offered by them. With the aim of providing contemporary standards of

facilities and services to be made available, formulation of classification of hotels is

essential. Ministry of Tourism in India has formulated a voluntary scheme for the

classification for operation of hotels. Following categories have been identified: Star

category Hotels and Heritage category hotels. The following figure 4.2.1 depicts the

classification of hotels is India.

Fig. 4.2.1: Pictorial representation of Classification of Hotel Industry in India.



There doesn’t seem to be any specific demarcation between classified and non-

classified hotels. Since the vary from small owner operated bed and breakfast

establishment to highly rated hotels having thousand or more rooms. (NAYIF, 2001)

Classified Hotels have extensive facilities, non-Classified hotels have limited facilities

available for their guests. That means the classified hotels are the hotel with

standardised services and at times their rating is based on number of services they

offer to their clients. However, non-classified hotels are small hotels and guest houses

offering limited services and products.

At times there is a classification of hotels beyond the Star category based on other

factors. Following figure 4.2.2 represents the different criteria adopted for hotel

classification.

Criteria for Classification of Hotels:

Figure 4.2.2: Pictorial representation Criteria of Hotel Classification

Location: A hotel’s location and how it is connected to the activities in the area is

one of the most important aspects for a guest to choose a hotel as this gives

mobility to move freely and quickly around the city. Similarly, for a Business



47

traveller the proximity of hotel to the Airport is important; so hotels near Airports

will be called Airport hotels.

Size of Property: one of the measures to criteria to classify a hotel is the size of it.

(small hotel, medium sized hotel, Large hotel. etc.)

Level of Service: Hotels are classified by the type and the level of service they

cater. (Medium segment, Budget segment, Luxury segment etc.)

Length of Stay: Length of stay can get a hotel categorized into transient, residential

or semi residential etc.

Theme: A theme of the Hotel sets the type of customers a hotel will be catering

to. Boutique, Spa, Heritage are few examples of theme of a hotel.

Target Market: Hotel can be targeted towards one market segment, for example

Hotels near Airports are usually targeted towards businessmen, as they would

prefer a hotel which is nearer to the airport for their ease.

Worldwide Classification of Hotels

Hotels are usually ranked on a scale of 1-5 stars, 5 being the highest and 1 being the

lowest. All countries have either an independent organisation or a governmental body

or both who determine what star rating should a hotel get.

In United States of America, the Forbes Travel Guide scales hotel of 1-5 stars while the

American Automobile Association still uses diamond on a scale of 1 to 5.

In Europe the ratings of hotels are determined by local government agencies or

independent organisations. This varies from country to country.

A few countries have a nationwide run system (France and Portugal), In United

Kingdom the star scaling is done by the combined action of private and public

organisation. (Minazzi, 2010).



Figure 4.2.3: Sample Bill of Hotel from Pre-GST era.

The figure 4.2.3 depicts how the former taxation regime levied Multiple taxes these

taxes were levied by the Central and State governments on a single product/ service.

In the former indirect taxation regime, the state government would charge VAT, luxury

and entertainment tax, while the central government would then levy a whole

different set of taxes such as excise duty, service tax, customs duty and central state

tax. Consider the VAT, for instance, which is often charged by state governments on a

value already including an excise duty. Hence, with different states having their own

tax rates, hotels and hospitality businesses had no option to avail an input tax credit

since the burden of central taxes cannot be set off against state taxes like VAT, or vice

versa.

Before GST was rolled out, the tourism industry was accountable to pay multiple taxes

(VAT, luxury tax, and service tax). If we take an example of a hotel whose room tariff

is greater than INR 1000, this hotel was accountable to charge a service tax of 15%.

But, the effective rate of service tax was 9% as the Laws under VAT regime gave an



49

abatement of 40% on the tariff value. Next, the Value Added Tax (12-14.5%) and luxury

tax were added on top of this. (Acharjee M., 2018).

Post GST the scenario of the taxation for the hospitality industry changed. Add 2 tables

post GST slabs.

Tariff GST rate Slab

INR 0- INR 999 No Tax

INR 1000- INR 2499 12%

INR 2500- INR 7499 18%

INR 7500 and above 28%

Table 4.2.1: GST tax slabs at the time of GST introduction

Tariff GST rate Slab

INR 0- INR 999 No Tax

INR 1000- INR 7499 12%

INR 7499 and above 18%

Table 4.2.2: GST tax slab post 17 October 2019 revision.

Proportion/Ratio of taxation on classified/unclassified hotels vis-à-vis other

countries

It is needed to be mentioned here that; in the present GST regime the GST charged

based on declared room tariff of the hotels as on the date of billing. Therefore,

imposition of tax is not in accordance with its category. The same trend has been

observed in the competitive countries where there is the system of observing a similar

tax structure for all categories of hotels.

The following table depicts the varied taxed levied by their hotels in their respective

countries. The taxes levied are known by varied names.

GST

VAT (Value added tax)

Municipality Tax



In addition to these taxes, few taxes levied are worth mentioning

Tourism Development Tax

Nation Building Tax

Country Tax levied by Hotels

Maldives GST 12 % + 7 % VAT

Dubai 10% Municipality Tax

Malaysia GST 6 %

Singapore 17 % Tax

Thailand VAT 7 %

Sri Lanka 11 % VAT + 1 % Tourist Development Tax + 2.04 % Nation

Building Tax

Hong Kong

No Tax

India Slab Wise GST (12 %, 18%)

Australia 10% GST

Table 4.2.3: Tax rate levied by hotel in various Countries.

Table 4.2.3 showcases the Tax rates levied in various countries by hotels. From the

table 4.2 it is evident that the taxes levied by hotel rooms varies in term of

nomenclature and in term of percentages. In Maldives besides GST the hotels also

charge VAT which if added accounts to 19% of the total Hotel bill. Similarly, in Dubai a

Hotel levies tax as 10% municipality. Even though India has multiple tax slabs it is

important to point out that the highest tax slab of 18% in India for the hotel industry

is at par with the existing competitors of Indian tourism Industry. Besides the existence

of more lower tax slabs can make the market more attractive.

Although the following observation is not in the purview of terms of reference, yet

they need to be mentioned. In India only GST is levied. Charges beyond GSTlike service

charge is not added to the bills of hotel in India. Although Cess if declared by the

government can be a part of the bills. A little clarification on what is a service charge

and cess. Service Charge is the charge usually added at the time of transaction. In

Hotels and restaurants Service charges are levied in almost all the countries. Cess is

short for ‘assess’ and it is tax on tax and levied for a specific purpose. Once the purpose

is over, cess is stopped as well. The central government levies cess.



51

Country Tax Levied by Hotel

Rooms Service charge Cess

Maldives GST 12 % + 7 % VAT - -

Dubai 10% Municipality Tax 10 % -

Malaysia GST 6 % 10% service + addition

Malaysian Ringgits in 5 Star hotels

-

Singapore 17% Tax - -

Thailand VAT 7 % 10% -

Sri Lanka

11 % VAT + 1 % Tourist Development Tax + 2.04 % Nation

Building Tax

10% -

Hong Kong

- 10% -

India Slab Wise GST (12 %,

18%) Optional

Swachh Bharat cess + Krishi Kalyan cess

Australia 10% GST - -

Table 4.2.4: Tax rate of all the countries along with Service charge and Cess

It is evident from the table 4.2.4 that, many neighbouring country of India have

additional service charge levied on tax. This means that hotel in countries like

Thailand, Sri Lanka the guest pay extra beyond the taxes paid

If we add all the additional charges depicted in table 4.2.4, this is how the tax rates of

other competitive countries appear as against India’s 12% and 18% tax:

Country 12% (Tariff between INR

1000 and 7500) 18% (Tariff above

INR 7500)

Maldives 19% 19%

Dubai 10% 10%

Singapore 17% 17%

Malaysia 6% 6%

Thailand 7% 7%

Sri Lanka 14.04% 14.04%

Honk Kong 0% 0%



Australia 10% GST 10% GST

Table 4.2.5: Tax rates of South East Asian countries and Australia.

Table 4.2.5 depicts consolidated charges that a client essentially has to pay at the time

of billing. Even though in some countries such as Malaysia and Thailand have lower

tax rate in comparison to the Indian tax rate.

The second term of reference thus helps identifying the proportion of tax which are

paid by the consumers of the hotel industry in India and the Neighbouring countries.

It can be inferred that the taxes at certain places are low enough to attract the tourist

to their destination. Malaysia and Thailand are the examples of it. Hong Kong seems

exceptions where no taxes are levied on the bills of hotel however a mandatory 10%v

service charge is added to the final hotel bill.



53

4.3 3rd Term of Reference: The Competitiveness of India vis-à-vis its competitors

in South East Asia and Asia Pacific in terms of accommodation tariffs

India’s competitiveness in comparison to South East Asian and Asia Pacific countries

has been a matter of concern by the stakeholders, keeping in mind that the same may

get effected negatively by introducing GST.

Competitiveness

The World Economic Forum defines competitiveness as ‘the set of institutions, policies

and factors that determine the level of productivity of a country.’ There are actually a

number of definitions to define this concept but the world economic forum has been

measuring competitiveness among countries since 1979. We can also refer to

competitiveness as, what makes a country competitive is to consider how it actually

promotes our well-being. A competitive economy is undoubtedly a productive one.

Productivity leads to growth and growth further leads to improved well-being.

Criteria of Competitiveness

The competitiveness report of the world economic forum can be used as a strategic

benchmarking tool for policy makers, companies, and complimentary sectors to

advance the future development of the travel and tourism sector by providing unique

insight into the strengths and development areas of each country/economy to

enhance industry’s competitiveness. The travel and tourism competitiveness index

measures the set of factors and policies that enable the sustainable development of

the Travel & Tourism (T&T) sector, which in turn, contributes to the development and

competitiveness of a country. Following Figure 4.3.1 shows the Tourism Competitive

Index given by World Economic Forum (WEF) comprising of four sub-indexes, 14 pillars

and 90 individual indicators, distributed among the different pillars.



(Source: http://www.oceanhealthindex.org/methodology/components/tourism-competitiveness-index-tci)

Figure 4.3.1: The travel and tourism competitiveness index framework

1. Enabling environment: This sub-index captures the general conditions necessary

for operating in a country.

2. Travel and Tourism Policy enables conditions of sub-index to capture specific

policies or strategic aspects that impact the T&T industry more directly.

3. Infrastructure sub-index captures the availability and quality of physical

infrastructure of each economy and includes 3 pillars.

4. Natural and cultural resources sub-index capture the principal “reasons to travel”

and includes 2 pillars.

As indicated in the second sub-index (T&T policy and Enabling Conditions) price

competitiveness is one of the integral parts of Travel and Tourism Competitiveness.

Price Competitiveness can be affected by pricing decisions like the cost of the product,

demand competition, government and legal regulations, marketing and the objectives

of pricing. The second sub-index of T&T Competitiveness Index itself speaks that lower

costs related to travel in a country increase its attractiveness for many travellers as

well as for investing in the T&T sector. The inclusions are airfare ticket taxes and



55

airport charges, which can make flight tickets much more expensive; the relative cost

of hotel accommodation; the cost of living, proxied by purchasing power parity; and

fuel price costs, which directly influence the cost of travel. Meaning thereby, that hotel

tariff are the elements of attractiveness to the tourist and the same should be

considered while formulating the policy related to the tariff and taxes impacting the

tariff rate.

One way of measuring the Competitiveness of a hotel is Average Daily Rate (ADR). ADR

is a tool used by the hospitality industry all over the world to indicate the actual

average room rate/ day. For the purpose of understanding the competitiveness of

Hotels in India vis-à-vis this concept of ADR shall be used.

Average Room Rate is used to measure the average rate for a longer period (weekly,

monthly). It is a measure of the average rate paid for the rooms sold, calculated by

dividing total room revenue by rooms sold.

Figure 4.3.2 indicates the pattern of Average Daily Rates of India. Which depicts that

the average rates have gone down after year 2008. Lower average daily rates are

attraction to tourists visiting India as the have to shell down less prices for a

comfortable stay. The lowering prices in trend definitely invites promising number

from outside India and even boost the domestic tourism within own country.

Source: Statista, Inc., U.S.

Figure 4.3.2: Average daily rate in USD of India between 2001 and 2018

0

50

100

150

200

2001

2002

2003

200

4

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

8373 68

7896

122

162

199

168

136143126

10692 90 85 85 89

Ave

rage

Dai

ly r

ate

in U

S$

Financial Year



A comparison between Asia Pacific and Middle East/ Africa is clearly exhibited in

Figure 4.3.3 shown below:

(Source :https://www.statista.com/statistics/245759/average-daily-rate-of-hotels-worldwide-by-region/)

Figure 4.3.3: Average Room Rate of Hotels in Asia Pacific and Middle East/Africa

Asia Pacific comprises of 48 countries as per United Nations and typically includes

much of East Asia, South Asia, Southeast Asia and Oceania whereas Middle East/

Africa includes 18 countries from transcontinental region centered on Western Asia,

Turkey (both Asian and European), and Egypt (which is mostly in North Africa). As

explicitly evident from the graph the Average daily rate for Asia pacific region has been

witnessing change in ADR year wise

The figure also speaks that the ADR of the Asia Pacific region is less than that of the

Middle East region, which indirectly speaks of its attractiveness for visitors to travel to

their land.

Further the comparison of ADR of India‘s neighbouring countries is done In terms of

tariff rate in Table 4.3.1.

108.05

152.22154.56

162.45161.64

164.27

158.94

152.3

143.2140.94 140.97

94.13

119.23

128.23 128.23130.8

119.24

109.31

101.39 99.65 100.57

106.99

70

80

90

100

110

120

130

140

150

160

170

180

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Ave

rage

dai

ly r

ate

In U

S$ m

illio

n

Middle East/Africa Asia Pacific



57

Country Average Room rate (in USD)

India 89

Jakarta 73

Philippines 103

Singapore 256

Asia Pacific Region 106

Middle East Region 140

Table 4.3.1: Exhibiting Average Room rate of India and neighbouring countries

The table clearly indicated that there is significant variation of ADRs among the

countries. That of Singapore is the highest and Jakarta is at the lowest.

An important observation can be from the Figure 4.3.3 and table 4.3.2 that the

Average room rate (ARR) of India was at USD 89 i.e. INR 6300 approx. This is

significantly lower that the region-wise competitor Asia Pacific and Middle East by

almost a margin of USD 20 and USD 54.

A significant number of the hotels in India had tariff lower than 6300 and this keeps

them in the GST tax slab of 12%. In case of average room rate less than 1000 the GST

would not be levied on the hotels. Further, reductions in the taxes may impact on

revenue generation of the government and the considering the tax rates on hotel

rooms in neighbouring countries, India has competitive tax structure which will not

reduce its competitiveness and chances of survival in market.

There is yet another comment to make that ADR points to the profitability of any

organization, so lower ADR means lower revenue. Thus in a longer runthis ADR may

be attractive for tourists but for the country it needs to be improved since itdirectly

influences the returns.



Asia-Pacific TTCI 2019 Rankings

Global Rank

Economy Score

Difference from 2017

Score Diff. from Benchmark Avg.

Rank Score

Growth (%) Regional (%) Global %

4 Japan 5.4 0.0 2.1 29.1 39.6

7 Australia 5.1 0.00 0.8 23.6 33.5

13 China 4.9 2.0 3.2 17.2 26.7

14 Hong Kong SAR

4.8 -3.0 -1.1 15.7 25.1

16 Korea. Rep. 4.8 3.0 4.7 14.9 24.3

17 Singapore 4.8 -4.0 -2.0 14.4 23.7

18 New Zealand 4.7 -2.0 1.4 14.1 23.4

29 Malaysia 4.5 -3.0 0.4 8.5 17.3

31 Thailand 4.5 3.0 2.6 8.1 16.9

34 India 4.4 6.0 5.7 6.3 14.9

37 Taiwan China 4.3 -7.0 -3.0 4.1 12.6

40 Indonesia 4.3 2.0 2.8 2.6 11.0

63 Vietnam 3.9 4.0 3.4 -5.9 1.7

72 Brunei Darussalam

3.8 n/a n/a -9.1 -1.7

75 Phillipines 3.8 5.0 4.2 -9.8 -2.5

77 Sri Lanka 3.7 -13.0 -2.3 -10.4 -3.2

93 Mongolia 3.5 9.0 4.8 -16.6 -9.8

97 Lao PDR 3.4 -3.0 0.4 -17.9 -11.2

98 Combodia 3.4 3.0 2.4 -18.4 -11.8

102 Nepal 3.3 2.0 2.3 -19.5 -13.0

120 Bangladesh 3.1 5.0 7.3 -25.5 -19.4

121 Pakistan 3.1 3.0 7.1 -25.6 -19.5 (Source: World Economic Forum, 2019)

Table 4.3.2: TTCI Ranking of Asia Pacific Countries 2019

The extract from the Travel & Tourism Competitiveness Report 2019 in Table 3.3

shows the ranking of the Asia Pacific Countries in the Travel &Tourism Competitive

Index for the year 2019. The position of India improved to 34th position in 2019 from

40th position in 2017. GST was introduced in 2017 when India ranked 40th and after 2

years of introduction of GST the rank further improved to 34th position which shows

that the competitiveness of India is not affected by GST.



59

It is also a established fact Higher ADR of the hotels does not hit the interests of the

tourists since other factors like infrastructural facilities, service quality etc. does

matter in determining the decision of a tourist to travel to any destination.

4.4 4th Term of Reference: How many hotels/conventions centres etc. have availed

the benefits of the incentive of being in the Harmonized list of sub-sectors

IBEF (2019) stated that contribution by travel and tourism sector to India’s GDP is

expected to increase from Rs 15,24,000 crore (US$ 234.03 billion) in 2017 to Rs

32,05,000 crore (US$ 492.21 billion) in 2028. According to WTTC, India ranked 3rd

among 185 countries in terms of travel & tourism’s total contribution to GDP in 2018.

Travel and tourism are the third largest foreign exchange earner for India. Thus, the

importance of Tourism as poverty alleviator, employment generator, GDP contributor

cannot be ignored.

Accommodation as one of the A's of tourism is a significant determinant of the

success of tourism in any country. It is also well established that incentives, subsidies

and rebates often boost the industrial prosperity on an economy. Hence focus in terms

of status, incentives etc. to the accommodation sector shall add to the investments in

the country. In India, one way of giving a boost to the hospitality industry is through

providing the infrastructure status.

Defining the term infrastructure in 2009, the Cabinet Committee of Infrastructure

(CCI) came up with a harmonized master list of 5 main infrastructure sectors

(Transport, Energy, Water and sanitation, Communication and Social and commercial

infrastructure) and 29 infrastructure sub-sectors. The list is a flexible one and acts as

a guide to all agencies involved in the field of infrastructural development or financing

in India. It was decided not to have any rigid and inflexible listing of sub-sectors so that

each financing agency can draw up their own list of subsectors out of the master list

with proper justification for inclusion or non-inclusion of a sub-sector. The following

as depicted in Figure 4.4.1 are the six characteristics that make any new sub-sector

eligible to be included in the master list:



Figure 4.4.1: Characteristics of Infrastructure The Government of India Gazette notification dated 7th October, 2013 inter-alia have

the following entries in respect of hotel industry in the category of “Social and

Commercial Infrastructure”:

i. Three-star or higher category classified hotels located outside cities with

population of more than 1 million.

ii. Hotels with project cost of more than Rs. 200 crores each in any place in India and

of any star rating.

This is applicable with prospective effect from the date of notification (i.e. 7th

October 2013) and is available for eligible prospects for three years from the date of

notification. Further, eligible costs exclude the cost of land and lease charges but

include interest during construction.

There was then a revision in the Harmonized Master List of Infrastructure sub-sectors.

The new list incorporates the change to the notification dated 17th October 2017

under Social and Commercial Infrastructure category. The notification states that with

the approval of the Competent Authority, an updated Harmonized Master List of

Infrastructure Sub-sectors is hereby notified. Following is the updated information

about the Social and the Commercial Infrastructure category. Tourism infrastructure

now includes:

i. three-star or higher category classified hotels located outside cities with a

population of more than 1 million

ii. ropeways and cable cars

Once the industry is accorded infrastructure status, the sector is entitled to several

benefits and concessions. This grant of status enables the industry to raise money

from insurance companies, pension funds and international lenders with longer

Natural monopolyPossibility of price

exclusionNon-tradability of

output

High sunk costs and asset specificity

Non-rivalrous in consumption

Presence of externalities



61

tenure and on easier terms. Infrastructure status gives industries access to cheaper

foreign currency funding through the External Commercial Borrowing route. Falling

under the infrastructure category helps the sector get credit under competitive rates

and on a long-term basis with enhanced limits. Furthermore, the logistics sector will

also be eligible to borrow from the India Infrastructure Financing Company (IIFCL).

S No Projects availing benefits under harmonised list

1 5 Star Hotel-cum-Convention Centre, Ludhiana

2 Five Star Hotel at Guwahati

3 3 Star Hotel at Amritsar

4 5 Star Hotel at Amritsar

5 5 Star Hotel at Bhatinda

6 5 Star Hotel-cum-Convention Centre, Mohali

7 5 Star Hotel-cum-Convention Centre, Amritsar

8 International Convention Centre in Orissa

(Source:www.pppinindia.gov.in/infrastructureindia/web/guest/view-project)

Table 4.4.1 Projects Availing benefits under Harmonized LIST

Till date as per the list available on the website of Ministry of Economic Affairs,

Government of India sub section database of infrastructure projects in India, these are

the projects availing benefits the centre at present is working on a proposal to grant

infrastructure to hotel projects worth 50 crores or more. This move is aimed to

encourage small and mid-segment hotel and projects in the country to avail benefits

of the status.



4.5 5th Term of Reference: The effect of taxation/incentives on restaurants

A restaurant is a public place, which provides the services of food and beverage to the

guests in exchange for money. A restaurant is a place where the guests rest and pay

rent for food and beverage. Many people believe that a Hotel and restaurant are the

same, but a hotel has the facility of accommodation along with food and beverage.

The Indian restaurant and foodservice industry comprise of two distinct segments:

organized and unorganized. The organized segment accounts for about 30-35% of the

Industry, while the unorganized segment accounts for the remaining 65-70%. The

organized segment is characterized by an organized supply chain with quality control

and sourcing norms with multiple outlets having standardized designs. The

unorganized segment lacks technical standardization and a structured supply system

or business practices.

(Source: Company Presentations, Industry)

Figure 4.5.1 showing the organized and unorganized segments of restaurants

Types of Restaurants-

1. Organized Restaurants are of various types to cater to the need for multiple

guests. The classes are as below:

2. Fine Dining: A formal Affair, with high-end décor and a formal dress code.



63

3. Casual Dining: The Ambiance of casual dining largely depends on the customer

base, and there will be table service, but a little different from Fine dining.

4. Fast Food: Fast food restaurants are mega-chain eateries such as McDonald's,

Pizza Hut, Carls Junior etc. All the Fast food restaurant have a few similar traits;

the stores are known for their quick service, drive-through service, casual

ambience and use of containers meant for quick disposable items.

5. Cafes: café type of restaurant have become a place for many purposes. A lot of

cafés have emerged as a place of meeting, work or to socialize.

6. Buffet Restaurants: Buffet restaurants allow guest to choose from an array of food

options. The Guests help themselves in the as no service to the table is available.

(Source: Ficci, Company Presentations)

Figure 4.5.2: Indian organized food market segmentation for the year 2019

Taxes in Restaurants

Taxes are involuntary fees levied on individuals or corporations and enforced by a

government entity — whether local, regional or national — to finance government

activities. This fee paid in taxes is used to pay the salaries of government servants,

infrastructure development such as the construction of roads, maintaining Public

places etc. The Indian restaurant and foodservice industry is growing exponentially

since 1995-96. Some of the significant investments in recent years are as follows:

Casual Dining, 55

Quick Service Restaurant and Fast Food, 20

Pub, Club and Bar, 12

Full Service Restaurant, 2 Others, 3



The investment arm of French luxury goods conglomerate LVMH, L Catterton Asia,

acquired a controlling stake in Impresario Entertainment & Hospitality, which

owns fine dining restaurant brands Smoke House Deli and Social at about Rs 400-

450 crore.

Massive Restaurants Pvt. Ltd (MasalaBar, Pa PaYa, Farzi Café) raised about Rs 100

crore in FY18 from private equity fund Gaja Capital to fund expansion

Sapphire Foods raised Rs 225 crore of equity investment led by Edelweiss Private

Equity and its existing investor Goldman Sachs for supporting its expansion plans

in India in December 2018

Swiggy, online food delivery start-up raised USD 1 billion from existing investor

Nasper Ltd and China's Tencent Holdings Ltd in December 2018, making it the

biggest ever funding in the country's booming food-tech sector

Alibaba's payment affiliate Ant Financial invested USD 210 million in restaurant

discovery and food-delivery platform Zomato in October 2018

Zomato, to promote cloud-based kitchen, has committed to investing USD 15

million in Bengaluru-based Loyal Hospitality

Hardcastle Restaurants, owner and operator of McDonald's restaurants in west

and south India, plans to invest Rs 800 - 1,000 crores over the next 3-year period

to introduce healthier options (low-calorie, low-fat alternatives) and digitize its

stores to attract millennial.

Reasons for flourishing Restaurant Business

Below mentioned are some of the reasons under different sub-heads highlighting the

reasons behind flourishing restaurant business:

Favourable demographics

The earning population if India, i.e. 15-60 years had increased from 62.5% in 1996

to 66.5% in 2016.

The lower median age implies a higher number of working people, thereby clearly

outlining the immense earning as well as spending potential of the Indian

populace.



65

The age group below 25 years is one of the highest spending age group. The

current age dynamics are expected to boost retail sales in India. The median age

of India is 26.7 years, one of the lowest globally in comparison to 37.2 years in the

US, 45.8 years in Japan and 36.3 years in China.

Economic growth

GDP registered an average increase of over 7.5% in the last five years, i.e. between

FY15 and FY19

Per capita GDP witnessed a growth of over 10% y-o-y, and per capita, Private Final

Consumption Expenditure (PFCE) registered a growth of over 11% on year on year

basis during FY19

Rising income levels & growing per capita expenditure

In the last decade, the Indian economy has progressed rapidly. Correspondingly,

India's per capita GDP has gone up from Rs 98,405 in FY15 to Rs. 143,048 in FY19

at a CAGR of 9.8% fuelling a consumption boom in the country.

Correspondingly, the per capita personal disposable income surged from Rs

100,439 in FY15 to Rs 144,758 in FY19 at a CAGR of 9.6%. Also, the per capita

private final consumption expenditure too rose from Rs 57,201 in FY15 to Rs

85,086 in FY19 at a CAGR of 10.4%. The growth in the country's per capita GDP, in

turn, has increased the disposable income of the populace, ultimately driving the

country's consumption.

Growing spread of plastic money & easy availability of credit

Increase in the use of credit and debit cards has resulted in increased spending

amongst the consumers thereby fuelling the demand in the service sector. The

number of Card users in the country has increased.

The effect of GST on Restaurants in India

The Goods and Services tax has influenced every sector of the economy. The

Restaurant and Food Service Industry is one of the fastest and most significant

revenue-generating Industry in India, and the effect of GST has been noticed in this

Industry too. To understand the effect of GST, the need is to look at the conditions



that were prevalent in the previous tax regime. With the introduction of GST in July

2017, the service tax and Value added tax regime went down, below mentioned are

the quick differences that both the Tax regimes have for restaurants:

Restaurant Type Pre GST Regime Post GST Regime

Central Taxes State Taxes Central Taxes

State Taxes

Restairamt (without air conditioning)

- - 2.5%^ 2.5%^

Restairamt (with air conditioning)

15% on Service

Component^^

12.5% of Food Bill

20.0% for alcohol bill

2.5%^ 2.5%^

A/C Restaurant in 5 Star or Above Rated

Hotel

15% on Service

Component^^

12.5% of Food Bill

20.0% for alcohol bill

9% ^^ 9% ^^

^ With no input tax credit ^^With input tax credit - Liquor however continues to attract state levies like VAT as its kept outside of GST regime - Restaurants inside hotels will also levy 5% GST, except for starred hotels with tariffs over Rs.

7,500/-

(Source: CBEC)

Figure 4.5.3: Pre-GST and Post GST for restaurants.

Pre-GST a Value added tax system was applicable in all sectors of the economy. In

Restaurants the VAT system was followed in the following way:

Figure 4.5.4: VAT system followed in restaurants

VAT was levied @5% on cooked foods and snacks provided by a restaurant.

VAT was levied @20% on Cold drinks and @14% on alternative nonfood items.

Entry Tax is additionally payable @1% on the staple and incidental product utilized

in the manufacture of cooked food.

Luxury Tax is additionally payable by out of doors caterers @10% underneath LEAT

Act with the sale price being deducted on that tax is vulnerable to be duly



67

submitted under MPVAT Act here hospitals and academic institutions are

exempted.

Under MP VAT Act tax on the sale of alcoholic liquor to customers is levied @ 5%

The rate of service tax is 14%, and along with Swachh Bharat Cess of 0.5%, the

amount charged to us is 14.5%. From June 1, 2016, KrishiKalyanCess of 0.5% will

also be added to this, making the total service tax from June 1 onwards, 15%.

Ideally, service tax should be imposed only on 40% of the Value of the bill, which

is assumed to be the standard service expense, as opposed to the remaining 60%

that is the raw material of the food and beverages ordered by the customer. This

means that the service tax is chargeable only on 40% of the bill and not on the

entire amount. So on the whole bill, the service tax chargeable will be 5.8% (6%

from June 1).

Post GST

Figure 4.5.5: GST on Non-AC and AC restaurants

The research team through personal interview. Emails tried to understand the impact

of taxation on restaurant.

Data pertaining to questions were collected. Mentioned below is the interpretation

The research team visited a total of 89 restaurants throughout the country to collect

the primary data for this research work.

Types of restaurants visited by the research team in India –



1. Stand-Alone Restaurants - The stand-alone restaurants are a category of

restaurants which is a business or commercial setup meant to only deliver food to

its customer's. The Goods & Services Tax charged for government in these

restaurants is now 5%. For instance: Sher-e-Punjab, Indian Coffee House, etc.

2. Restaurants inside Hotel - These restaurants differ in both services and GST

charges as compared with Stand-Alone Restaurants. The restaurants inside hotels

offer both lodging and food services to its guest. Generally, these restaurants are

meant to deliver the food inside the rooms of the guest. Here are some

complications which need to understand regarding GST rates. The government of

India charges only 5% GST on food if its consumption is inside the premises of a

restaurant area. However, the GST rates differ if the food delivery is inside the

guest room. The GST rates on room delivery inside the Hotel by the inside

restaurant of the Hotel is 18% now.

Data collection

After visiting the restaurants research team has collected various data on opinions,

preferences and suggestions on GST. The questions asked and responses received are

shown below using the Graphical method.

Restaurant owners


Figure 4.5.6: Restaurant owners/managers response about effect on Business after

GST implementation

77%

23%

yes

no



69

Although Initially there was a lot of confusion regarding the guidelines on AC/non-AC

GSTapproval, but this got streamlined after the tax rates were reduced to 5%. And

passage of time

2. Do guests ask you for GST rates, at the time they pay for the food in your

restaurant?

Figure 4.5.7: Response by Restaurant owners/Managers

It was observed in some cases that some guests out of curiosity ask GST rates. But,

most of them are not aware, since they have never noticed the rates before.

3. Has GST effected profits?

Figure 4.5.8: Restaurant owners’ response about GST Effect on Profits

13%

87%

YES

NO

70%

30%

Yes No



To reason attributed to yes was that the profit has gone down. Since the cost of

operations has increased, the profits have diluted. Monthly filing of GST is a

cumbersome activity, fees of CA has become a necessity, this has led to profits being

thinner.

4. Has GST streamlined their business in terms of procurement of raw material?

Figure 4.5.9: Restaurant Owner’s Response on Streamlining in terms of

Procurement of Raw Material after GST

GST has had a stark impact on restaurant business; however, its effect on standalone

and chain restaurants or Restaurants functioning in Hotel has been different.

Standalone restaurant executes a small operation on daily basis, due to which their

procurement of raw material happens from a vendor who does not have a GST Id. At

the same time restaurant chain run a bigger operation and they have set vendors who

usually do have GST Id.

5. Does guest take note of GST rates, at the time they pay for the food in your

restaurant?

60%

40%

No

Yes



71

Figure 4.5.10: Customer’s awareness about GST rates at the time of Payment

As indicated Not a lot of the guest noted the GST Levied, but one of the restaurant

owner mentioned there were a few who noted when having food inside a restaurant

it attracted a GST of 5% and while having it outside the restaurant i.e. when food is

cooked outside the restaurant it attracted a GST of 18%. It had to be explained to them

there were two different charges.

6. Is Input credit beneficial?

Figure 4.5.11: Awareness in Restaurant Owners about GST Input Credit Benefit

Input credit benefit. Input credit means at the time of paying tax on output, you can

reduce the tax you have already paid on inputs and pay the balance amount.

Restaurants don’t get input credit at 5%. The Restaurant owners plead to the

government so that they can avail when the benefit were at 95%, while other 5% said

they weren’t looking to avail Benefit of Input credit.

15%

85%

Yes

No

95%

5%

Yes

No


https://cleartax.in/s/what-is-input-credit-and-how-to-claim-it/


Comment on complexity of GST Guidelines

The research team had lengthy deliberations on GST with the restaurant owners about

simplification and further reforms in GST Process. The research team asked them

about the complications in the GST process and found apparently GST process

complicated to them. Thereafter research team decided to go further into the

complicatedness aspect of GST on their business.

Many restaurant owners/managers said that it is very complicated to understand GST.

For instance, many restaurant owners/managers said that they buy cold drinks from

suppliers at 18% GST and in their restaurants, they must charge 5% GST on same cold

drink for which they had paid 18% GST to the supplier. Hence, they found GST

complicated.

Talking to owners/managers, the research team came across more problems like

related with ‘Input Credit’ which all the owners/managers found complicated to

understand.

Customers' viewpoint

The study was conducted on the customers to know about their concern on GST.

Are you aware about the taxes levied on restaurants Pre-GST?

Figure 4.5.12: Awareness in Customers about taxes levied Pre-GST

The customers are normally unaware about the form of taxes levied pre-GST and Post-

GST. They have a basic understanding that they are paying taxes, however the

quantum of taxes is unknown to them.

5%

95%

Yes

No



73

Do you know what GST?

Figure 4.5.13: Awareness about GST in Customers

The study tried to know if consumers are aware about the concept of GST. Much to

their surprise they don’t have enough awareness about the concept at all.

Are you aware of the tax rates in GST?

Figure 4.5.14: Awareness in Customers about GST Rates

Ever since the GST rates came to down 5% in restaurant. It was pertinent to ask the

customers about the tax levied since it must have brought down their food bills. But

in contrast the customers were not aware about any changes.

Do you know what service Charge is?

25%

35%

40%

Yes

no

Yes, but do notunderstand it completely

15%

85%

Yes No



Figure 4.5.15: Awareness in Customers about Service Charge

This question was intentionally asked to know if they are aware about Service charge

being optional. But most of the customers were not aware about the fact and were

paying added to the bill without any prior information

Thus, this term of reference speaks about the impact of GST on restaurants. IN all, the

restaurant owners are happy with tax rate of 5%, even though not much customers

have noted the change. The time lapsed has also eased out operations. But there

stands a unified demand of allowing to avail benefits of input credit which is currently

unavailable. Taxes on rents, purchasing few items like beverages at 18% and not

letting avail the benefits have cut down margins of profits.

10% 90%

Yes No


Recommendations

75

5. Recommendations

The introduction of the Goods and Services Tax (GST) is a very significant step in the

field of indirect tax reforms in India. This comprehensive, multi stage, destination base

tax has subsumed almost all indirect taxes of India. Publicised as One Nation One Tax,

it is aimed to provide reduction in multiplicity of taxes, mitigation of cascading/ double

taxation etc. for the trade on one hand to simpler tax system to the consumers on the

other. Even though this reform in taxation took a decade of intense debate yet its

journey till date has been very challenging. Tourism and hospitality industry is no such

exception. Multiple tax slabs for hotel tariffs, non-clarity on taxation patterns, absence

of input credit benefits by few stakeholders has led to discussions and rounds of

meetings with GST officials.

The Team started collecting primary data in May 2018. During this first phase of data

collection the team found out that the Hotel and restaurant owners were facing

operational difficulties with the use of GST, while this was one of the woes which

worried them the main hurdle, they found with GST was the High tax rate.

In the 28 months of GST, it has gone through several regulations. When GST was

introduced the hotels levied multiple tax slabs dependent on the tariff. In October

2019 the new regulation brought down the ceiling tax rate to 18% for Hotels. Since

then, the view of the hospitality industry on GST has taken a U-turn as the industry is

content with the new rates.

Based on the challenges sfaced, the study was commissioned to understand the

impact of GST on the Tourism and Hospitality industry. Terms of reference were

framed and were intensely studied by the team. Since they were highly related to each

other, the recommendations proposed are in common.

1. Educating the masses about GST with clarity At the time of interview and

personal interaction, it was found on numerous occasions about people

unawareness about the new indirect tax reform. Even though there was a huge

buzz about the introduction but clarity regarding its benefits and operations

were not invoked properly. This has led to a climate of ambiguity, apprehensions



about the concept. The government and related associations must organise

meetings, conferences, lecture etc. to spread awareness about GST. Social media

should be used to educate masses with correct informations

2. Eliminating the confusions of regular changes in tax slabs : GST was introduced

to eliminate the complexity of previous multiple indirect tax system. However,

the multiple slabs rates introduced for the hospitality industry had created much

apprehension in the minds of the stakeholders. Ever since its inception there has

been frequent changes in the guidelines of GST implementation in hotel

industry. This has created a lot of confusion for all stakeholders. The study also

revealed that the countries witnessing the successful tourism has restricted their

tax rate to a single slap. The study also indicates that the stakeholders dissent

on the issue of multiple tax slab is high. Considering both the arguments of the

stakeholders and that of previous studies on destination, it is proposed that even

in India the tax slab can be maintained at one level to avoid any further ambiguity

in the entire industry.

3. Eliminating the paradox of GST harming the hospitality industry particularly

hotels amongst the stakeholders: The very idea of introducing GST and replacing

the previous indirect tax system was to promote ease of doing business. Since

its introduction it has been speculated by the stakeholders that the new form of

taxation is negatively impacting the industry particularly hotels, as the duration

of stay and number of bookings have reduced significantly. However, the data

from the official sources is narrating a different story that the foreign tourist

arrival has increased. Therefore, it is recommended that any such paradox

settled in mindset of stakeholders must be addressed and removed. This can be

done by regular meetings, interactions and involvement of the stakeholders for

any further changes to be introduced.

4. Inclusion of Industry stakeholders in policy formulation for larger interest: The

inclusion of industry partners/ stakeholders plays a crucial role while formulating

any policy which connects the dots of the business these stakeholders are

engaged-in. The study on competitiveness index prepared by the World

Economic Forum has also suggested and supported the involvement of the


Recommendations

77

stakeholders in policy formulation process. Thus, the study proposes that

participation of stakeholders of all levels and of all areas of the tourism and

hospitality industry should be given an opportunity to bring the issues on the

table at initial stages of policy formulation. This will take into consideration the

real time business scenarios. Their contribution will further reduce the

resistance by the stakeholders in implementing the changes in GST.

5. Communicating the comparable rates payable without compromising the

competitiveness in comparison to other countries: It needs a special mention

that Under the 3rd term of reference a fact has been observed that most of the

countries have a taxation rate almost equal or more than India’s rate of tax but

the fact is neighbouring countries not only charge one form of tax but also few

more such as service tax etc. However, in India there is no further tax after GST.

The study recommends that this has to be made understood to the stakeholders

and further communicated to the tourists that the overall tax paid on the hotels

rooms in India are lower or are comparable to the taxes prevailing in

neighbouring countries.

6. Hotel tariffs to act as medium of attractiveness: The World Economic Forum

under its one of the criteria’s-Travel and Tourism Policies and its enabling

conditions mentioned that the tariff rates of a room in a hotel act as a medium

of attraction to tourists and thus, anything impacting them (say taxes) must be

critically evaluated and judged before implementing. The attractiveness gets

lessened when the taxes are more. It also revealed that the neighbouring

countries attract more tourists and their basic tax rate is less than that of India.

It is recommended that India should try to keep at taxes par with the

neighbouring countries which can then become a determining variable to attract

the same kind of clientele.

7. India has better taxation system: As evident in terms of reference in the name

of taxes, the neighbouring countries of India are charging more taxes in form of

multiple taxes while India has only tax. The taxes levied on hotel tariff in India

has one rate whereas the other countries after charging one tax, levies other

taxes as well which further escalates the overall charges a tourist has to pay.



Thus, in this way India is going good in comparison to other neighbouring

countries. This needs to promote and highlighted when we are promoting,

marketing or selling a particular destination as tourist may not understand this

difference.

8. Well defined Infrastructure status and lucrativeness: The strongest pillar of any

industry is the infrastructure base and the same goes with tourism and

hospitality industry as well. The need of time is redefining the infrastructure with

the objective of reducing the ambiguity. The more the incentives and subsidies

(not only in terms of harmonised list) the more would be the lucrativeness. Like

other industries, tourism and hospitality industry also need a push in the form

of incentives, subsides and investments. This industry which is much

unorganized needs a special treatment and support from the government and

the policy makers.

9. Reliance on accommodation sector alone will not invite promising numbers:

Tourism and Hospitality industry has its strong reliance on 5 A’s which comprises

of accommodation, accessibility, activities, amenities and attractions. Just

accommodation sector development will not determine the fate of tourism

industry. The other factors are also important and should be considered for

improvement. Therefore, it is recommended that the stakeholders should be

made understand that taxes are one aspect but the quality of services, types of

services, technology and the professionalism are also very important.

10. Organising workshops for education about operational issues involvement in

filing GST returns: Any form of taxation system is good when its implementation

is understandable to the stakeholders involved.. The same is always advisable to

avoid confusion and to develop better understanding. The need is to promote

awareness about GST and its operational challenges in implementation. People

usually feel reluctant to use GST systems of filing taxes because of computer

illiteracy and they often hire a professional for such purpose. There can be

training modules or sessions which can convert the complexities into simplicity

and reduce the resistance from the stakeholders


Recommendations

79

11. Redefine luxury slab: As stated in the opening remarks of the project, tourism is

not a luxury anymore. People do not reach out to this activity after fulfilling their

basic needs. Instead now people intentionally save for travel. The new India is

prospering and therefore their disposable income is on the rise. But at times

factors such as heavy taxes becomes a deterrent. In that case, it becomes

important to look into the issues with high concern. Overlooking such factors

may adversely effects the businesses. When the customers were interviewed it

was found that the corporate customers need not worry about the tax since the

company was sponsoring their trip but for the leisure travellers, it was a critical

factor. The total cost change from one slab to another was very visually clear. It

is therefore proposed if this amount of 7500 which attracts the highest slab of

18% now (earlier 28%) needs to extend. The 18% charges can be made on tariffs

of nearly 8500-9000 serious to look into. His will not only increase profit for the

business but will also increase the revenue for the government.

12. Increase in Inter ministerial cooperation: Tourism and hospitality sector still do

not enjoy the status of industry and therefore its success depends on the policy

declaration of other ministries. Such dependence if not communicated well

among the concerned stakeholders leads to confusion and at times decrease in

revenues to be earned. This lack of cooperation was realised when the team had

to reach out to different ministries for collection of data for harmonised list of

infrastructure in sub sectors

13. Availing of Input credit benefit by the restaurant owners: The long standing

demand of restaurant owners is non-availability of input credit benefit. It seems

justified since at times these stakeholders have to pay higher taxes like taxes on

rent, purchase of beverages but the benefit cannot be availed since the tax slab

for them is 5%. Hence it is proposed that this benefit should be made to avail by

these stakeholders

14. Improvements in quality of services of the stakeholders: As indicated in the

terms of reference that India’s Average daily rate of hotels is amongst the lowest

and that of Singapore is amongst few destinations where the ADR is on a higher

note. This misconception of higher prices does not invite tourists and is not does



not true. The price attractiveness is not set at the lower prices of the hotels but

is assessed by the individuals as worth for the price that he is paying. These are

needs to be taken by the industry that quality services with cost determine the

fate of the industry. Hence stricter compliance, regulations norms should be

implemented for better returns to the tourists visiting India

These recommendations if implemented all or in part will definitely show the positive

responses of the stakeholders. It will also show the interest of the policymakers in

understanding the stakeholder’s point of view. The resistance will be reduced if they

find that the policymakers feel their pain.


Bibliography

81

6. Bibliography

Chauhan, P. H. (2019). Applicability of GST on Restaurants–bills, Tax Rates and

Service Charges in India. Advance and Innovative Research, 184.

Jasim, K. (2017). Goods And Services Tax (GST) and its impacts on hotel industry in

South Tamilnadu. Shanlax International Journal of Economics, 5(4).

Jonathan. (2017). Impact of GST in hotel and restaurants. International Journal of

Academic Research and Development, 2(5).

Poonam, M. (2017)). Goods and Services Tax in India: An Introductory Study. 6th

International Conference on Recent Trends in Engineering, Science and

Management.

Durbarry, R., & Sinclair, M. T. (2001). Tourism Taxation in the UK. University of

Nottingham, Nottingham.

Pacurari, D. (2012). Taxation of income from tourists’ accommodation: case of

Romanian boarding houses. Studies and Scientific Researches. Economics Edition,

(16-17).

Yang, Li. (2015) "Rural tourism and poverty alleviation: the case of Nujiang,

Yunnan, China." International Journal of Tourism Anthropology 4.

(UNWTO, 2019) “Tourism Enjoys Continued Growth generating USD 5 billion per

day.”

Singh R, Das D, Jana RK, Tiwari AK (2019). A wavelet analysis for exploring the

relationship between economic policy uncertainty and tourist footfalls in the USA.

Current Issues in Tourism.

Murray N, Foley A, Lynch P. Fáilte (2013) go sláinte: understanding the tourist

experience concept.

Qu, H., Xu, P., & Tan, A. (2002). A simultaneous equations model of the hotel room

supply and demand in Hong Kong. International Journal of Hospitality

Management.



Vjekoslav, B., Bejaković, P., & Anton, D. (2012). Tax system as a factor of tourism

competitiveness: The case of Croatia. Procedia-Social and Behavioral Sciences, 44,

250-257.

Tsai, H., Kang, B., Yeh, R. J., & Suh, E. (2006). Examining the hotel room supply and

demand in Las Vegas: A simultaneous equations model. International Journal of

Hospitality Management.

Azmi, S. N. S., Ibrahim, S., Rahman, S. A., Kasim, N. A. M., & Rais, N. A. M. (2016).

A Review of GST enforcement on tourism sector. Journal of Global Business and

Social Entrepreneurship.

Blake, A. (2000). The economic effects of tourism in Spain. Christel DeHaan Tourism

and Travel Research Institute.


Appendix

83

7. Appendix

Questionnaire

Namaskar!!!

Greetings from IITTM, Noida

We are conducting a research on “Assessing the impact GST on Accommodation sector

in India vis-à-vis other countries” on the behalf of Ministry of Tourism, Government of

India. We request you to spare a few manures from your valuable time to fill up the

Questionnaire.

The purpose of this research project is purely academicals. Your participation in this

research is voluntary; you may choose not to participate. If you choose to be a part of

the survey you may withdraw at any time.

All your responses will exclusively be used for academic purpose only; the data will

not be shared with any agency.

Thanks,

Study Team.

IITTM Noida

D E M O G R A P H I C - P R O F I L E

1. Gender

a. Male [ ] b. Female [ ]

2. Age (in years)

a. Below 20 [ ] b. 20-30 [ ]

c. 30-40 [ ] d. 40-50 [ ]

3. Nationality (write the name of your country): _______________________

4. Educational Qualification

a. Under- Graduate [ ] b. Graduate [ ]

c. Post- Graduate [ ] d. Any other

5. Occupation

a. Employed [ ] b. Not Employed [ ]

c. Any other



6. Monthly Household Income (in US $)

a. Below 600 [ ] b. 600 –900 [ ]

c. 900 –1200 [ ] d. 1200 and above [ ]

7. Marital Status

a. Married [ ] b. Unmarried [ ]

c. Others [ ]

SURVEY QUESTIONS


a. Yes [ ] b. No [ ]

__________________________________________________________________

__________________________________________________________________

9. Are GST rates a matter of concern for tourists?

a. Yes [ ] b. No [ ]

__________________________________________________________________

__________________________________________________________________

10. Do you see any effect of GST on the number of Walk-in customers in your

hotel?

a. Increased [ ] b. Decreased [ ]

__________________________________________________________________

__________________________________________________________________

11. Do people ask you to not generate bills, so that they do not need to pay the

GST amount on total spending at your business?

a. Yes [ ] b. No [ ]

__________________________________________________________________

__________________________________________________________________

12. Do you agree that majority of people who ask for bills require it for

reimbursement purposes from their concerned organization/ company/

employer?

a. Yes [ ] b. No [ ] __________________________________________________________________

__________________________________________________________________


Appendix

85

13. Do you see any impact of GST on your online and offline bookings, and do you

agree people are preferring online bookings over offline bookings?

a. Yes, there is impact of GST on online and offline booking

b. No, I do not think there is any impact of GST on online & offline bookings

14. Why do you think customers are more attracted towards online bookings?

a. No, I don’t think customers are inclined towards online bookings.

b. I think customers are preferring online booking as it has greater discounts

c. I think online booking is preferred by customers as it is convenient.

d. Both Discounts and Convenience factors responsible for customers'

preference of online booking over conventional.

__________________________________________________________________

__________________________________________________________________

15. Do you find GST complicated? Is it related to filing of GST returns?

a. Yes [ ] b. No [ ] __________________________________________________________________

__________________________________________________________________

Restaurant:


a. Yes [ ] b. No [ ] __________________________________________________________________

__________________________________________________________________

2. Do guests ask you for GST rates, at the time they pay for the food in your

restaurant?

a. Yes [ ] b. No [ ] __________________________________________________________________

__________________________________________________________________

3. Has GST effected profits?

a. Yes [ ] b. No [ ] __________________________________________________________________

__________________________________________________________________ 4. Has GST streamlined their business in terms of procurement of raw material?

a. Yes [ ] b. No [ ] __________________________________________________________________

__________________________________________________________________



5. Do your guests take note of GST rates, at the time they pay for the food in your

restaurant?

a. Yes [ ] b. No [ ] __________________________________________________________________

__________________________________________________________________

6. Is Input credit beneficial?

a. Yes [ ] b. No [ ] __________________________________________________________________

__________________________________________________________________

Customers Viewpoint:

1. Are you aware about the taxes levied on restaurants Pre-GST?

a. Yes [ ] b. No [ ] __________________________________________________________________

__________________________________________________________________

2. Do you know what GST is?

a. Yes [ ] b. No [ ] __________________________________________________________________

__________________________________________________________________

3. Are you aware of the tax rates in GST?

a. Yes [ ] b. No [ ] __________________________________________________________________

__________________________________________________________________

4. Do you know what service Charge is?

a. Yes [ ] b. No [ ] __________________________________________________________________

__________________________________________________________________


26 38525/2019/market research division(mrd)...during the course of this research. therefore, we...

Documents