Hotels Worried Over Higher Taxes On Dine-In, Seek GST Parity With Restaurants

Mita Kar travels frequently within the country for work at least twice a month. The techie stays at a four-star hotel as her company bears the expenses. But, notwithstanding her long tiring days, she always forages for a meal outside the place of stay.

"Why pay 18% GST for a plate of biryani that I can get at a cheaper rate from another restaurant that's just 1 km away?" the 29-year-old woman asked. "After all, we don't get reimbursements for food!"

At a time when the sector is still recovering from the impact of the pandemic, the disparity in Goods and Services Tax on dining at hotels as compared with standalone restaurants is making hoteliers wary of a possible slump in revenue.

They argue that the existing GST structure for food and beverages in restaurants within hotels, where rates are based on room charges, poses a significant disadvantage.

Customers eating at standalone restaurants pay a uniform GST of 5%, while those dining at hotel restaurants are charged a steep 18% if the hotel's room tariff exceeds Rs 7,500—a rate that applies even to guests not putting up at the hotel.

"The current system where the GST rate for a restaurant within a hotel is tied to room rates is unfair, uncertain and disadvantageous," Pradeep Shetty, president-elect of the Federation of Hotel and Restaurant Associations of India, told NDTV Profit.

While the mid-and upscale market hotels are allowed to claim input tax credit, the guests perceive the higher tax rates as a mere burden, according to Shetty, who is also the director at Maharaja Hotels, Mumbai.

"The perception of an 18% GST rate at a restaurant within a hotel discourages customers, even if the prices on the menu are lower compared to that with standalone restaurants," he said.

The hotels also encounter "challenges" catering to walk-in customers due to the disparity in the GST rate, according to the president of the FHRAI, which represents 55,000 hotels.

A customer dining at a standalone restaurant pays Rs 100 in GST for a Rs 2,000 meal, while the same at a hotel restaurant will attract a staggering Rs 360 in taxes, according to Vishal Tony, managing director at Ayatana Hospitality. "This difference is pronounced in the mid-market segment, where customers are more price-sensitive."

Tony highlighted that the impact of the GST disparity goes beyond just customer perception. "It hampers hotels' ability to attract customers and capitalise on potential revenue opportunities," he said. "The competitive disadvantage against standalone restaurants creates challenges in terms of market share."

Hoteliers have been voicing their concerns on the tax discrepancy since 2019 and the argument has not changed since. They wonder why a hotel room rate should have any significance with dining options. The industry has recently submitted a memorandum to the Union government, hoping for a more uniform and rationalised GST structure amid fierce competition from online platforms and shrinking dine-in sales.

There are guests who prefer ordering from Zomato or Swiggy. They indulge in in-room dining without availing hotel services. This behaviour also highlights how the world eats is changing dramatically and the demand for online food delivery services is growing in tandem with the increasing number of digital users.

Another perk is that consumers can save time as these online platforms promise to deliver restaurant-like gourmet meals in as early as 10 minutes.

Factors like ambience, luxury and quality of service is often overlooked by guests with budgetary constraints, according to Sandesh Khandelwal, chief financial officer of Sayaji Hotels Ltd.

"Despite this apparent disadvantage, it's crucial to recognise that room tariffs are market-driven and competitive," Khandelwal said. "Balancing the need for tax equity with the industry's dynamics is essential, understanding that various factors contribute to the pricing structure within the hospitality sector."

Asian countries like Thailand, Malaysia and Singapore enjoy considerably lower tax rates, prompting a need for reconsideration in the GST to bolster India's competitive position on a global scale, Khandelwal said.

Hotels and restaurants are poised to play a crucial role in growth of the Indian food service market, which is expected to reach $79.7 billion by 2028, growing at a compound annual growth rate of 11.19%, according to the Food Service and Restaurant Business Report 2022–23 by Francorp and Restaurant India.

The consensus is clear: the current GST framework is unsustainable, and a revision of the rates is imperative to create a fair and level-playing field.

A rationalised GST structure for dining services will contribute to a healthier business environment, according to Khandelwal.

"We strongly advocate for de-linkage of GST rates in restaurants inside hotels from room rates," Shetty said, as he sought uniformity in the GST rates across all F&B services, irrespective of whether they are situated inside a hotel or operating independently.

"Restaurants inside hotels are patronised by walk-in guests too and not just by in-house residential guests," the FHRAI has said in its memorandum. Therefore, they should have the freedom to compete on an equal footing with standalone restaurants.