Hospitality Industry Rally for Equitable GST on Dining Experiences in Hotels

The Hotel And Restaurant Association (Western India) – HRAWI has recently voiced its concern over the current GST structure affecting restaurants within hotels, particularly those linked to room tariffs above INR 7500. The association points out that this taxation model puts hotel-based restaurants at a significant disadvantage compared to standalone restaurants and calls for a crucial overhaul of the GST rates applied to them. HRAWI is advocating for the separation of GST rates for restaurants from hotel room charges, proposing that all restaurants be taxed uniformly, regardless of their location within hotels.

HRAWI's President, Pradeep Shetty, remarked on the issue, stating that the current GST linkage to room rates unfairly burdens hotel restaurants, especially when attracting walk-in diners. The leap in GST from 5 percent to 18 percent for room tariffs over INR 7500 introduces a level of unpredictability for customers and places hotels at a competitive disadvantage. 

This practice, according to Shetty, discriminates against hotel restaurants compared to their standalone counterparts, despite offering similar quality dining experiences. The association has made a plea to the government for the standardization of GST rates across all dining establishments to foster fair competition and ensure the industry's longevity, aiming for equitable treatment of all restaurant categories.

The Association also highlighted how this GST disparity adversely affects larger hotel chains in attracting walk-in guests and complicates banquet service offerings, leading to customer dissatisfaction and operational challenges.

Shetty emphasized the importance of creating a level playing field in the hospitality sector by standardizing GST rates for food and beverage services across the board. This adjustment is deemed essential for nurturing a competitive environment, promoting fair practices, and securing the hospitality industry's future.

Echoing HRAWI's sentiments, Siddharth Renganathan, Co-Founder of Suvaii, added, “As the founder of Suvaii, I echo the concerns raised by the Hotel and Restaurant Association (Western India) – HRAWI regarding the current GST framework for restaurants within hotel premises. The existing structure, tying GST rates to room charges exceeding INR 7500/-, poses challenges for establishments like ours. We support the HRAWI's advocacy for reform, calling for uniform GST rates for all restaurants, regardless of their association with hotels. This change is essential for creating a level playing field, promoting growth, and ensuring a fair environment for restaurants to thrive within the hospitality sector.”

According to Kabir Suri, co-founder & Director of Azure Hospitality Pvt Ltd, “Balanced, fair and equitable policies by the government with respect to GST input tax credit, rationalised licensing norms and e-commerce policy will not only benefit businesses and consumers but also make a substantial contribution to overall economic growth and employment opportunities."

Since 2018, hoteliers have been vocal about their concerns that this tax variation is causing a decline in restaurant footfall, as customers opt for standalone restaurants to leverage tax advantages. Industry stakeholders are advocating for a standardized GST rate of 5% across all dining establishments to create a level playing field. Amidst the thriving performance of standalone restaurants nationwide and the already intense competition, the hotel industry is questioning the rationale behind linking hotel room rates to dining preferences.

Further compounding the challenges is the growing trend among hotel guests to opt for food delivery services from external sources. However, Abhishek Sarwate, cofounder and CEO at Utopian Smoothies feels that, “From the customer's perspective, there is practically no difference in dining at a high-end restaurant or at a restaurant operating inside a hotel. However, the customer ends up paying a significantly higher amount in the latter case, if the room tarrif exceeds INR 7,500/-, which seems arbitrary. Moreover, this customer could be a walk-in, in which case there doesn't seem any logical relation with the room tarriff to the bill amount the customer ends up paying. Hence, there is a strong case to re-visit this particular aspect of GST rate applicability.”

The current GST structure, which links restaurant taxes within hotels to room tariffs exceeding a certain threshold, has sparked significant concern among hospitality industry stakeholders. This taxation model is seen as putting hotel-based restaurants at a competitive disadvantage compared to their standalone counterparts, leading to calls for a crucial overhaul. Advocates for change argue that a uniform GST rate for all restaurants, irrespective of their location, would foster fair competition, alleviate operational challenges, and ensure a level playing field across the hospitality sector. 

The push for reform is motivated by a desire to create a more equitable and sustainable business environment that supports the growth and longevity of all dining establishments. Addressing this issue is essential for nurturing a competitive and fair hospitality industry, encouraging innovation, and enhancing customer satisfaction by making dining experiences more predictable and uniformly priced.