The cut in GST rate from 28% to 18% has brought it at par with standalone air-conditioned restaurants.
While the hotel industry might rejoice over its expected overall growth, new findings by CARE ratings might bring bad news for travel enthusiasts as the hotels average room rates will likely rise by 3.5%-4.5% per year for the next few years. The hotels industry, on the other hand will cheer the findings, as the room revenue for them is expected to increase at the rate of about 10-12% CAGR over the next five years, the report says.
However, the implementation of GST — the new taxation regime — is not to blame for the expected rise in room tariffs, the report said. GST, on the other hand, has simplified the taxing scheme and has also brought the rates down, it added.
Earlier, 28% GST was to be levied on a room tariff above Rs 5,000. However, this has now been amended and the only tariff above Rs 7,500 would fall in the highest tax slab under the GST regime.
The GST effect
The hotels now are required to charge 18% GST on rooms for tariff rates Rs 2,500-7,500, as against the previous proposed slab of 28% above Rs 5,000. The cut in GST rate from 28% to 18% has brought it at par with standalone air-conditioned restaurants. Food & beverages form 30%-40% revenue for five-star hotels, the report observed.
However, under the GST regime, the customers might have to shell more for premium hotels as the overall tariffs for four-star hotels and above may see an increase. This may have some impact on the demand which had seen a pick-up in the last financial year.
Further, the practice of bundling of meals with room tariffs may see a decline, especially for four-star category hotels, as higher tariffs above the stipulated levels of Rs 7,500 per day may attract higher tax rates, the report observed.
So what will cause the room rates to rise?
Here’s where there is some good news for hoteliers. Backed by an overall economic growth and consistently rising middle class with a considerable disposable income, CARE Ratings expects that the tourism industry is bound to see a boom. In fact, the industry might register a 7-9% increase in revenue generation.
Also, “India’s popularity as a medical tourism destination; steadily growing Meetings, Incentives, Conferences and Exhibitions (MICE) segment; and, an increasing fondness among millennial to travel” will result in overall growth in room tariffs.
The report has forecasted the average room rates to grow by 3.5-4.5% per annum and the occupancy will also increase by 68-70% by the end of FY19. The ultimate brunt will be upon the tourists and business travellers.