GST: Hotel Industry Lauds GST Relief But Divided On Impact
Hotel stocks rally on expectation that GST on actual tariffs could boost occupancies.
The hotel industry said the Goods and Service Tax Council’s decision to levy tax on the transaction value of hotel rooms instead of the declared tariff will benefit customers. They remain divided on the impact on room occupancies.
Royal Orchid Hotels Ltd. said the change would boost occupancies, while Radisson Hotel Group cautioned that the move "may not lead to a direct increase in average occupancy". Kamat Hotels India Ltd. noted the notification brings much-needed clarity for both hoteliers and consumers.
The GST Council had earlier levied the tax on printed room rates at 18 percent GST for room tariffs ranging between Rs 2,500 and Rs 7,500 whereas tariffs of Rs 7,500 and above attracted 28 percent GST. Now the rates are applicable on the billable price including discounts. So if discounts take the room rate below the Rs 7,500 threshold, the consumer will have to pay 18 percent not 28 percent.
The change in rules will bring down total room costs for customers, ICICI Securities Ltd. analyst Rashesh Shah told BloombergQuint. This will also make the premium segment more competitive during the lean season, he added.
Shares of hotel companies rallied today. Kamat Hotels India stock rose as much as 6 percent to Rs 64.4, Lemon Tree Hotels Ltd. rose as much as 4.8 percent to Rs 78.5, and Royal Orchid Hotels shares rose as much as 3.8 percent to Rs 152.
Here’s what hotel chains had to say:
Kamat Hotels India
The GST Council’s decision was “very fair” and will ensure that both hoteliers and consumers have clarity on the tax that will be levied, Vishal Kamat, Chief Executive Officer of Kamat Hotels India told BloombergQuint.
Earlier if your tariff was Rs 6,000 for instance, and during peak season it went up to Rs 8,000 or Rs 9,000…you would come in the category of 28 percent all through the year. This change is very important because it was very unfair to have multiple slabs with a particular segment.Vishal Kamat, CEO, Kamat Hotels India
Royal Orchid Hotels
The Council’s decision will improve ease of doing business, as hotels will be able to offer upgrades to customers without the fear of charging 28 percent GST, Amit Jaiswal, Chief Financial Officer of Royal Orchid Hotels told BloombergQuint.
It will add value to guests, which will impact the occupancies.Amit Jaiswal, CFO, Royal Orchid Hotels
The gap between transaction value and declared tariffs of hotel rooms is generally around 15-20 percent, he added.
Radisson Hotel Group
The move "improves transparency, eliminates confusion for customers and helps hotels manage their inventory more effectively bearing in mind seasonality and different room types,” Raj Rana, Radisson Hotel Group’s chief executive officer in charge of South Asian operations told BloombergQuint. However, the move to tax actual tariffs needn’t translate into higher occupancies, cautioned Rana.
It may not lead to a direct increase in average occupancy, as for that, demand-supply equilibrium has to come into play. Generally, 2019 is seeing an upswing in occupancy and rates, and the trend appears sustainable for the next few years.Raj Rana, CEO - South Asia, Radisson Hotel Group
The gap between published and declared tariffs is higher for premium category rooms and suites and could even be up to 30-35 percent, he added.
For the majority of the inventory, the variance could range from 10-25 percent due to segment mix including discounted corporate rates or negotiated group rates for meetings, conferences or events.Raj Rana, CEO - South Asia, Radisson Hotel Group