GST Council may rationalise rates for five-star hotels in Friday meeting

Goa and Rajasthan, among other states, have pitched for a rate cut for five-star hotels
The Goods and Services Tax (GST) Council is likely rationalise rates for five-star hotels in its meeting on Friday, holding out hopes for a boost to the tourism industry.

The fitment panel, comprising Central and state officials, recommended a rate cut for outdoor catering and rate rationalisation for match sticks in its final agenda circulated to the council members. 

The panel also favoured rate cuts for small items such as cups and plates. The council will take up exempting businesses with an annual turnover of up to Rs 2 crore from filing annual GST returns for 2017-18 and 2018-19.

The fitment panel recommended two ways of giving relief to five star hotels — by cutting the rate from 28 per cent to 18 per cent, or by way of increasing the threshold. Currently rooms with a tariff of Rs 7,500 per night and above attract a GST rate of 28 per cent. In another option, the threshold could be raised from Rs 7,500 to Rs 10,000 per night.

Goa and Rajasthan, among other states, have pitched for a rate cut for five-star hotels.

However, the committee did not favour rate reduction for vehicles and biscuits.

“Hotels and outdoor catering are two big items where the fitment panel has recommended rate cuts. However, a cut for the auto sector was out of the question, considering the huge revenue loss it would entail,” said a government official.

A cut for the auto sector would mean a revenue loss of Rs 45,000-50,000 crore.

Besides, the panel recommended a rate cut for outdoor catering from 18 per cent to 5 per cent, but without input tax credit. Among other items, a common rate of 12 per cent has been recommended for both hand-made and mechanised match sticks. They pay 5 per cent and 18 per cent, respectively.

The fitment committee, which did not warm up to the auto sector’s demand, posited that such a move would increase the compensation burden of the Centre, with cess collection under stress.   

According to the data accessed by Business Standard, there is a gap of around Rs 24,000 crore between cess collection till August and the compensation disbursed to the states. A slowdown in the auto sector has contributed to the bleak picture.

Around Rs 41,000 crore has been collected till August, as against Rs 65,000 crore disbursed. The shortfall is being met by the surplus pool of the previous fiscal year.

The states were promised compensation for five years since the GST came into effect to make up for their revenue shortfall because they lost autonomy over indirect taxes.

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Facing a deepening slowdown, the auto sector was pinning hopes on a cut from 28 per cent to 18 per cent. However, states including Bihar, Kerala, West Bengal, and Punjab are of the view that a slowdown in the auto sector cannot be attributed to the GST rate but on structural issues in the economy. 

The cess on the auto sector ranges from 1 per cent to 22 per cent of 28 per cent GST rate. 

Subdued GST collection poses a challenge with a growth target of 16 per cent for the central GST in 2019-20. GST collection will need to grow to at least Rs 1.17 trillion a month to achieve the target for the overall GST collection in the current financial year.