Delink GST on F&B from room tariffs, urges FHRAI.

The Federation of Hotel & Restaurant Associations of India (FHRAI) has urged the Centre to delink the goods and services tax (GST) levied on food & beverage services from the hotel room tariffs. Talking to FE, Pradeep Shetty, vice president, FHRAI, said currently, restaurants in the hotels, where room tariffs are below Rs 7,500, are subjected to a GST of 5% on food & beverages with input tax credit benefits. 

However, if the room charges increase to Rs 7,500 or more due to high demand or seasonality, the GST on F&B rises to 18%. “A lot of hotels are not crossing the room tariff threshold of Rs 7,500 due this linking,” said K Syama Raju, president, FHRAI. The body represents as many as 60,000 hotels and 500,000 restaurants across India. It has proposed a flexible system allowing all hotel restaurants to independently opt for either 18% GST with ITC or 5% without ITC, irrespective of the room rates.

Moreover, it has also suggested that this linkage should be removed or the threshold of Rs 7,500 should be moved to Rs 12,500 owing to inflation adjustment since 2017, when it was originally set. Shetty also said that the hotel industry has crossed pre-pandemic levels and is expected to grow steadily in the coming years. The recommendations come when a significant share of the future supply of hotel rooms is likely to come in luxury and upper mid segments. “FHRAI firmly believes that this will lead to substantial revenue enhancement for the government as at no point of time, these hotels will shift to a lower GST bracket in order to cater to a specific market which is defined by luxury and experience,” the body said in a statement. 

FHRAI, citing data from the ministry of tourism, added that there are 417 five-star and five-star deluxe hotels nationwide, all of which operate multiple restaurants. 

These establishments have significant operational expenses, making ITC a critical advantage that will encourage them to retain the 18% GST slab even if given the option to shift to 5%,” it said. 

Shetty also said that the demand for dine-in at restaurants continues to be strong and that the slowdowns in this space are only cyclical. “The growth story is looking good,” it said. 

He added that the commerce ministry is investigating the entry of Zomato and Swiggy into food delivery through private labels. 

“They know the whole behavior of the market; that in which market what products sells more. They are opening their own cloud kitchen there and selling that particular thing,” he said.

“There should be more neutrality. If you are the owner of the marketplace, then you should not stay in this.”