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Friday, 26 May, 2017, 12 : 00 PM [IST]

FAITH warns of irrecoverable damage to India’s tourism prospects with high GST rates

Federation of Associations in Indian Tourism & Hospitality (FAITH), the apex representative body of the travel & tourism and hospitality associations in the country, in a letter to the Finance Minister of India, Arun Jaitley has asked for the review of GST rates of 28% proposed on hotels and other accommodation units of INR 5000and above and on restaurants at 5-star hotels and bring it down to a rational 18% to save the tourism industry in the country. The proposed slab, if implemented, will make “India hugely uncompetitive”, the Federation said .

Documenting tax structure on tourism products including hotels and restaurants in countries in the region, FAITH said that India will not be able to compete with those destinations in luring tourists as well as meetings and conferences with these high tax structure. “We compete in the global marketplace with countries such as Thailand, Malaysia and Singapore. Thailand has a consolidated indirect hotel tax rate of 7% and 17.7% on restaurants. Singapore has a hotel VAT of 7% and 7% on restaurants. Malaysia has a hotel VAT of 6% and a 6% on restaurants. A 3-day stay by a foreign tourist at a daily rate of USD 150 (assuming hotel and food & beverage) will be taxed per night in India at USD 42 (not including cesses), USD 18 in Thailand (weighted average), USD 10.5 in Singapore and USD 9 in Malaysia. That implies on a total stay of 3 nights, for one person, India now becomes expensive by USD 72 against Thailand, by USD 95 against Singapore and by USD 100 against Malaysia,” the letter says.

This difference will get compounded, when Indian companies, bid for global conferences and events and large tour groups which come to India. Assuming the above simple economics, for a visiting conference of 100 people, India now becomes USD 7,200 more expensive than Thailand, USD 9,500 than Singapore  and USD 10,000 than Malaysia. This difference will further get compounded as most of the groups normally stay post conferences for 7-10 days and travel around the country. These travellers are now most likely to give India a miss, the letter points out.  

While benchmarking India to other countries, FAITH highlighted that China is estimated to get 55 mn foreign tourists and USD 50 bn in foreign exchange, USA 70 mn foreign tourists and USD 170 bn in foreign exchange, Spain 60 mn foreign tourists and USD 61 bn foreign exchange and France 85 mn foreign tourists and USD 57 bn in foreign exchange. Their indirect rates are highly competitive. China's hotels and restaurants have a VAT of 6%, for USA it is 15% and 7% respectively, for France it’s 10% across both the categories and for Spain it is 7%. Clearly India is at a disadvantage.

The document further expressed that a levy of 28% has the potential to create unprecedented damage to the tourism industry from which India will find it extremely difficult to recover. Not only will this impact inbound tourist traffic, but also spur the domestic meetings & conferences segment and holiday makers to increasingly travel to our South and East Asian competitors, rather than within India, since these destination will seem even more lucrative now.

 
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