Check-in issues

The Government has been vocal about improving India’s tourism potential and has taken several steps. It seems this push is paying off. The UN World Tourism Organisation (UNWTO) rankings show India moving up the ladder. India is blessed with so much potential and can easily draw the world to its numerous destinations.

The hospitality sector becomes a crucial part of this initiative. Hence, it is important that a simple, easy and efficient tax regime should be available for them to comply.

However, even two weeks after the GST went live, this sector is still trying to obtain clarity on many issues. Hotel tariffpricing has not been understood.

The most important aspect relates to the applicability of different rates of GST depending on the “declared tariff” of hotels, such as 28 per cent, 18 per cent, 12 per cent. Let us take an example of the highest rate of 28 per cent, which is applicable to accommodation in hotels including five-star hotels, inns, guest houses having declared tariff of a unit of accommodation of ₹7,500 and above per unit per day.

Now the key issue to be addressed is the where is the tariff required to be declared? Interestingly, the law also suggests ‘published charges’.

But before we examine this, it is crucial to understand the way the hospitality sector works across the world.

There is the Best Available Rate (BAR), which is the lowest rate of the day available for guests to book. The BAR rates are available to the general public.

BAR pricing is an attempt to reduce confusion for hotel guests. The BAR rate is in essence the lowest rate available for each date. As a result, instead of paying the same price for each room-night, the guest could pay different prices each night.

The hotels also have Rack Rates. When it comes to setting prices for rooms, establishing the highest rate is important. This rate is called the Rack Rate, and it is from this maximum price that all other rates take their lead.

But that is not to say that one Rack Rate will apply to every room in a hotel. It is essential to apply a different rate to each room category, for example, single rooms, twin rooms, family rooms.

Further, hotels work on dynamic pricing. Rooms within the same category at a hotel can be sold at different prices at different times. The price does not always have to remain locked. The key is flexibility and is based on consumer demand.

Accordingly, it is prudent that the Government gives clarity based on the industry practice and demystifies the aspect of declared tariff.

To add to the confusion, the hotels also recover service charges, late check-out charges, extra bed charges. What is the treatment of such charges while determining the declared tariff?

There are many answered questions which need immediate attention by the government and we hope that the sectoral GST committee suitably covers all these aspects. India’s tourism potential may otherwise be hit.

The writer is Partner Indirect Tax at PwC India. The views are personal

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