The GST rollout has had quite a significant impact on the hotel industry in India and more particularly on tourism oriented states like Goa. The reason I say so is because the GST tariff on room rentals exceeding Rs 7,500 is 28% which is one of the highest in the world. Also one of the anomalies that has emerged post GST rollout was that MICE activities (ie Meetings, Incentives, Conferences, Exhibitions) and other events held in hotels outside of the home State are not eligible for input tax credit (ITC).

Let me explain with the help of an illustration. Suppose Vikram Industries, a company based in Bangalore plans to have its annual sales conference for all its vendors’ pan-India in a luxury hotel ‘Mira’ in Goa. As the organising party is based in Bangalore, Hotel Mira will invoice the party by adding 28% GST on the final amount towards room hire. Generally, in principle, tax paid on input services is allowed as setoff from the output tax liability irrespective of the location of the transacting parties. Now coming back to my example since Vikram Industries is a company based in Bangalore, the GST paid by it in the form of Integrated Goods And Service Tax (IGST) to hotel Mira in Goa is not available as input credit to the company simply because the conference is held in a hotel outside the home state of Vikram industries ie Karnataka. Consequently this will significantly increase the costs for the company and act as a deterrent to hold the conference in hotels outside the home state.

The non-refund or non-receipt of input tax credit for businesses holding MICE activities in states other than the ones they operate in is the biggest drawback of GST for hospitality. Input tax credit is available if the entity arranging the MICE has its GST registered in the state where it is held and also input tax credit on Integrated Goods & Services Tax (IGST) is not applicable for the hotel industry. Not receiving a set-off for an expense will be discouraging for any business to conduct MICE activities outside their state. This will translate to such enterprises either holding MICE in their respective states or go to a country where not only the taxes are lower but also mostly get the tax refund by that country on exit.

Goa is predominantly a tourism oriented state. By and large livelihood of most people is dependent on industries incidental to it. The non-availability of input tax credit added to the high tax bracket will come as a double whammy to hotel industry in Goa. As per the president of Hotel and Restaurant Association of Western India (HRAWI) there is already an overall reduction in MICE bookings across hotels in India compared to the same period last year. Advance booking are being cancelled and new bookings are not happening.  Wedding season, one of the top grossing times for the hotel banquet division, is expected to be flat this year. Most companies are considering holding events in the same state where they are registered under GST. 

In the previous week, the empowered group of ministers on GST made some significant rollback in the tariffs of some products, along with raising the limit from Rs 75 lakh to Rs 1 crore for registering under the composition scheme meant to help the small and medium enterprise (SME) segment. There still remain many other issues that need realigning from the point of view of GST implementation. Making input credit available on hotels for interstate activities relating to Meetings, Incentives, Conferences and Exhibitions (MICE) is certainly one among them.