Lack of clarity around a key term for calculating the goods & services tax (GST) rates for hotels is spelling trouble for consumers booking hotels in the peak tourist season. While the government has said that hotels with ‘declared tariffs’ of Rs 7,500 and above will charge 28% GST, hoteliers said the term ‘declared tariff” is vague and unclear as hotels could declare and publish new seasonal tariffs several times a year and hotel rates may vary significantly with each season.
As a result, the term could be misinterpreted, and is creating confusion among travellers. “I was trying to book a room at Ibis Mumbai airport and I am being charged 28% tax for a tariff of Rs 5,999,” said a customer who did not wish to be identified. Accor, which has brands such as Ibis and Pullman, did not respond to an email seeking comments. Some hotel chain executives said the rates submitted to the government were in excess of Rs 7,500 and those being offered now were the best available rates which could vary with season. Hilton stated on its website that all the prices displayed on its website were subject to GST and that the tax amount, based on the prevailing declared tariff of the room type, will be added to the hotel bill.
Hotels and lodges with a tariff below Rs 1,000 a day were exempted from GST, while those with a room rate of Rs 1,000-2,500 were taxed at 12%, those with a tariff of Rs 2,500-7,500 will attract 18% tax and those above Rs 7,500 will be taxed at 28%. Earlier, threshold for the 28% slab was at room tariffs of Rs 5,000, but later revised to Rs 7,500 by the GST Council. Hotel associations such as the Federation of Hotel and Restaurant Associations of India (FHRAI) are now approaching the finance ministry, requesting for taxes to be charged on the invoice value. “We are taking up the matter with the ministry of finance. The confusion started when they created all these slabs. Either they should do away with slabs and keep a uniform tax rate or hotels should charge tax on the invoice value. Everywhere else people are paying tax on the invoice value,” said Garish Oberoi, president, FHRAI.
In July, the ministry clarified that accommodation in any hotel, including five-stars, having a declared tariff of a unit of accommodation of less than Rs 7,500 per unit per day will attract a GST rate of 18% and that the star rating of hotels is irrelevant for determining the applicable rate of GST. But hoteliers have been requesting the ministry to charge taxes on the transaction or invoice value instead of the declared tariffs. Tax experts reckon the government should provide clarity and should consider the invoice value for calculating the GST rate in hotels.
“Levying tax on basis of declared tariff leads to complications. If I am giving a room on a particular day which is less than Rs 7,500, then ideally it should be taxed at 18%. There could be issues relating to seasonality and having different declared tariffs for a certain class like corporate customers,” said Pratik Jain, national leader, indirect tax at PwC India. Jain further said that the government should simplify the process. “They should not link it with the tariffs. As in other cases, it should be based on the invoice and the actual rate on a particular day. If the rate is less than Rs 7,500, customers should not be charged 28%.”