Edelweiss: Cut in GST rates a definite positive for hotel sector

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Published: September 25, 2019 1:49:56 AM

The GST Council in its recent meeting cut GST rates for the hotel sector across the board. The biggest cut came in the luxury category (>INR7,500/night) — to 18% from 28%.

The GST Council has approved the proposal to cut rates on hotel tariffs. The GST Council has approved the proposal to cut rates on hotel tariffs.

The GST Council in its recent meeting cut GST rates for the hotel sector across the board. The biggest cut came in the luxury category (>INR7,500/night) — to 18% from 28%. While GST implemen-tation in July 2017 had led to a reduction in effective taxation for all other categories, that on the luxury segment had increased ~8%. This added to the segment’s woes, which had managed to clock mere 3% average ARR increase in the preceding four years (FY13-17).

Though the fresh move is definitely a positive for the entire sector, given the highest cut in the luxury segment, key beneficiaries will be EIH, Chalet Hotels and Indian Hotels (IHCL). Maintain ‘BUY’ on IHCL (DCF-based TP: INR180) and Lemon Tree (DCF-based TP: INR65).

The GST Council has approved the proposal to cut rates on hotel tariffs. The tax on room tariff above INR7,500 has been slashed to 18% from existing 28%. The council also decided that rooms with a tariff between INR2,500 and INR7,500 will now pay GST of 12% against 18% earlier. There will be no GST on rooms with tariff below INR1,000 per night. Tax rates have been cut in a bid to improve India’s competitiveness; the primary GST rate of 28% on hotels had made the star category hotels in Indian cities the most taxed in the world. Moreover, the government is also planning to reduce eVisa charges to further improve India’s tourism competitiveness. As a metric, foreign tourist arrivals grew mere 2.1% in H1CY19 — lowest for the last four years.

In July 2017, when GST was impleme-nted, taxation for the sector had risen from an average of 18-22% (primarily luxury tax and service tax) to slabs of 5-28%. While majority of the categories saw a reduction in taxation, the luxury segment’s jumped ~8% (From ~20% earlier to 28%). This added to the woes of the segment which had managed to clock mere 3% CAGR ARR increase in the preceding four years (FY13-17).

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