Hotels Association president Kachru says budget needs to rationalize taxes on hotel industry

NEW DELHI: The hotel industry is banking on reforms in the Union Budget 2025-26 to reduce accommodation and F&B costs to make travel more affordable for consumers.

KB Kachru, president and chairman emeritus of the Indian Hotels Association and chief advisor to Radisson Hotel Group, said that apart from tax incentives, the industry has also advocated for reduction of Goods and Services Tax (GST) rates on hotel rooms and restaurants to improve industry viability. South Asia tells Mint.

These changes can reduce hotel operating costs, improve affordability for travelers, and help attract more international visitors. He said such measures would also attract more investment, create jobs and contribute to India’s long-term economic growth as the industry faces high costs and regulatory hurdles.

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tax breaks and incentives

Simplifying the GST on hotels and restaurants and reducing the GST rates on meetings, incentives, conferences and exhibitions for international tourists will help make the industry more competitive and viable for foreign tourists.

“We propose to reduce the 18% consumption tax on hotel rooms priced above this price $7,500 to 12%, in line with other Asian countries. Additionally, we propose reducing the GST on hotel restaurants to 12% with full input tax credit (ITC), making them more competitive than the current 5% GST rate for independent restaurants without ITC force,” he said.

Kachiru added that taxes on Indian consumers also need to be rationalized. “Thailand, Singapore, Sri Lanka and other Asian countries are gaining an advantage over us as they are also looking to tap into the same travel wallet of Indians who are also spending money in India.”

“Hotels in India are dealing with rising costs and need some rationalization of the taxes levied on them. India is also at a disadvantage when it comes to large events like weddings and conferences,” he said.

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infrastructure status

Although the association has always advocated The infrastructure situation has been good for several years but the associated benefits have not yet been reaped. Hotels can only gain infrastructure status if they meet certain criteria, such as very large developments of a certain size and cost. If that changes, developers will be able to get better project financing, easier access to bank loans, lower development costs and certain types of tax incentives, he said.

Further, the RBI’s unified master list of infrastructure sectors and sub-sectors needs to be updated to include newly identified sectors or revised to include hotels to ensure consistency in all relevant financial regulations and policies related to infrastructure development. He said this would help encourage investment in the development of hotel rooms, which are an important part of the country’s tourism infrastructure.

China has formulated its 2047 tourism vision, aiming to attract 100 million foreign tourists and 20 billion domestic tourists. However, this goal cannot be achieved without significant growth in the hospitality industry.

Kachru said India was severely short of rooms compared to other competing Asian destinations. Demand for hotel rooms is rapidly outstripping room supply and this needs to be addressed immediately with more investment in the industry.

The existing organized hotel room count (approximately 200,000 rooms) will not be sufficient to meet the expected growing demand in the coming years as the next batch of hotels will be developed at a much slower pace.

Hotel projects are capital-intensive and have long development cycles. The high business rates or capital costs required to build a hotel make it less viable to invest in as they do not provide a return that justifies the investment.

“The private sector needs to drive the next phase of the industry’s development and there must be sufficient incentives to encourage institutional investors to invest in hotels here,” he said.

“We think a positive development is that the government has started to acknowledge the existence of the industry. The hotel industry has been re-rated over the past two years and the industry is performing quite well, with hotels having strong indicators such as average daily room rate – used by hoteliers indicators,” he said.

However, he noted that some challenges will persist because tourism is a national subject, meaning each state decides how much to spend on tourism-related projects or what rules apply. While there will always be some differences between central and state government decision-making, the association expects greater uniformity in hotel building regulations between the major states.

He added: “If the industry hopes to attract future investment and achieve its target of increasing the number of hotel rooms from the current 200,000 to one million rooms in the coming years, we will need government support to help achieve this unification. “

According to a report by hotel consultancy Hotelivate, the industry’s national occupancy rate will hit 67.5% in 2023-24, the highest level in a decade, with average daily occupancy rates $8,055, a record high. Over the past five years, the industry has experienced a compound annual growth rate (CAGR) of 6.6% for available room nights and 7.2% for occupied room nights.

“While this momentum continues nationally in 2024/25, growth has slowed and some markets are showing early signs of negative trends,” the report said.

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