The hotel sector advocates for lower GST rates and infrastructure status to alleviate costs and boost competitiveness. With rising demand for hotel rooms, these reforms are crucial for attracting investments and supporting India's tourism vision for 2047.
New Delhi: The hotel industry is banking on the Union Budget 2025-26 for reforms that could lower stay and dining costs, making travel more affordable for consumers.
The industry is advocating for a reduction in Goods and Services Tax (GST) rates for hotel rooms and restaurants, besides tax incentives, to boost sector viability, K.B. Kachru, Hotel Association of India president and chairman emeritus and principal advisor for Radisson Hotel Group in South Asia told Mint.
These changes could lower operating costs for hotels, improve affordability for travellers, and help attract more international visitors. With the sector facing high costs and regulatory hurdles, he said such measures will also attract more investment, create jobs, and contribute to India's long-term economic growth.
Tax cuts and incentives
Simplifying GST for hotels and restaurants and lowering GST rate for meetings, incentives, conferences, and exhibitions for international tourists will help make the sector more competitive and viable for foreign visitors.
"We suggest lowering the 18% GST on hotel rooms priced above ₹7,500 to 12%, bringing it in line with other Asian countries. Additionally, we recommend reducing GST for hotel restaurants to 12% with full input tax credit (ITC), making them more competitive compared to standalone restaurants that currently have a 5% GST rate without ITC," he said.
Kachru added that there is a need to rationalise taxes on Indian consumers as well. "Countries like Thailand, Singapore, Sri Lanka, and others in Asia are gaining advantage over us as they are also looking to tap into the same travel wallets of Indians, who also spend money in India."
"Hotels in India are dealing with rising costs, and there needs to be some rationalization of the taxes imposed on them. India is also at a disadvantage when it comes to large-ticket events, both in weddings and meetings," he said.
Infra status
Although the association has been advocating forinfrastructure status for several years, it has yet to receive the associated benefits. Hotels can receive infrastructure status only if they meet certain criteria, like a very large-scale development of a certain size and cost. If that changes, he said, developers would be able to access better project financing, easier access to bank loans, lower development costs, and some types of tax incentives.
Additionally, the RBI's harmonised master list of infrastructure sectors and subsectors would need to be updated to include newly identified sectors or revised to include hotels, ensuring consistency across all relevant financial regulations and policies related to infrastructure development. This would help encourage investment in the development of hotel rooms, which are a crucial part of the country's tourism infrastructure, he said.
The country has a tourism vision for 2047, aiming to attract 100 million foreign tourists and 20 billion domestic travellers. However, this goal cannot be achieved without significant growth in the hotel sector.
India is severely under-roomed compared to other competing Asian destinations, Kachru said. Demand for hotel rooms is fast outpacing room supply and that needs to be addressed immediately by way of more investments in the sector.
The number of existing organised hotel rooms – about 2 lakh – will not be enough to meet the growing demand expected in the next few years as the pace of development of the next set of hotels is far slower.
Hotel projects are capital-intensive and have long development timelines. The high commercial interest rates or cost of capital needed to build hotels make them less viable investments, as they do not offer returns that justify the investment.
"The private sector will need to drive the next phase of development in the sector and there must be enough incentives to encourage institutional investors to want to invest in hotels here," he said.
"We feel that the positive development is that the government has started to acknowledge the sector's presence. The hospitality industry has been re-rated in the last two years and the sector is doing pretty well, and hotels are commanding strong metrics like average daily rates -- a metric hoteliers use," he said.
Some challenges, however, will persist because tourism is a state subject, that is every state decides how much to spend on or what rules apply to tourism related projects, he noted. While there will always be some differences between central and state government decisions, the association expects greater uniformity among major states regarding hotel building regulations.
"If the sector wants to attract future investments and reach our goal of one million hotel rooms in the coming years, up from the current two lakh rooms, we will need government support to help create this uniformity," he added.
According to a report by hospitality consulting firm Hotelivate, the sector closed 2023-24 with a nationwide occupancy of 67.5%, the highest in a decade, and an average daily rate of ₹8,055, an all-time high. Over the past five years, the sector saw a compound annual growth rate (CAGR) of 6.6% in available room nights and 7.2% in occupied room nights.
"While 2024/25 continues to build on this momentum at a national level, growth has moderated, with some markets showing early signs of negative trends, the report said.