“GST Without ITC” Hinders Affordability in Tourism Sector: FHRAI
The Federation of Hotel and Restaurant Associations of India (FHRAI) has raised concerns that the recent Goods and Services Tax (GST) rate rationalization for the tourism sector—specifically the structure of GST without Input Tax Credit (ITC)—is counterproductive and negatively impacts affordability and accessibility.
The Core Issue: Tax Structure on Hotels
- Loss of Input Tax Credit: The government’s decision to cut the GST rate on hotel accommodation priced up to ₹7,500 per night to 5%, while simultaneously denying the industry the ability to claim Input Tax Credit (ITC) on their purchases, is the primary source of the grievance.
- Cost Accumulation: Since hotels cannot claim credit for the GST they pay on inputs like construction materials, repairs, cleaning supplies, and capital goods (which are typically taxed at higher rates of 18% or 28%), these costs get bundled into the final price of the room or service. This makes the effective cost of operations higher.
- Defeats Affordability Goal: The FHRAI argues that while the headline rate of 5% looks affordable to consumers, the loss of ITC means the actual price reduction is often negligible or completely offset by the built-in cost of unclaimable GST. This defeats the government’s stated goal of making Indian tourism more competitive and affordable globally.
Impact on the Sector
- Competitiveness: The lack of ITC makes Indian tourism services less competitive against international destinations that offer a clear pass-through of tax benefits.
- Investment Discouragement: It disincentivizes new investment in the sector, as the denial of ITC on capital expenditure (a major cost for new hotels) hurts long-term profitability.
Source :- Zee News India