The Indian Goods and Services Tax (GST) Council has levied a 12% tax on small hotels and accommodation facilities charging room rent up to Rs 1,000 ($12.5) per day effective from 18 July 2022.
“The move will deal a heavy blow to India’s budget hotel industry, which saw annual revenues nosedive by 70% in 2020* due to COVID-19. However, intensive national vaccination program and the subsequent easing of COVID-19 restrictions boosted consumer confidence and the hotel industry recovered in 2021. This positive consumer sentiment carried over into 2022, with 51% of Indian respondents in GlobalData’s Q2 2022 survey describing their spending on hotels and accommodation as being quite/very high, compared to 49% of respondents in the Q1 2022 survey,” Anjali Singh, Consumer Analyst at GlobalData, said.
“The revival in domestic tourism has fueled the demand for affordable leisure and homestay accommodations, thereby spurring the recovery of the budget hotels. Consequently, the overall revenue of the Indian budget hotels skyrocketed annually by 147% in 2021. The average daily rate of budget hotels also rebounded by 15.4% in 2021.
“However, the GST Council’s decision to impose a 12% tax on hotels, lodges and clubs with daily room rent of Rs 1,000 ($12.5) or less will push up the overall travel costs for low-budget guests, who are already tackling spiraling food and fuel inflation. As a result, guest traffic will be redirected to small-scale hotels with annual revenues under INR2 million ($25,067), which are exempted from GST. In areas where such facilities are insufficient or inadequate, travelers may be tempted to seek unregulated accommodation, or even curtail their travel plans.
“The hike in room rent will thereby disrupt the recovery of budget hotels, many of which are on the brink of permanent closure during the peak of the pandemic. However, the overall Indian hospitality sector will grow in 2022 as domestic travel increases. Staycations, pilgrimages, weekend leisure trips, and social gatherings are once again becoming a part of life for most Indians after a two-year hiatus.”
