Absence of input tax credit under GST hits hotel industry’s MICE segment

Empty hall MICE activities held in hotels outside the home State of the organising entities are not eligible for input tax credit

Lack of input tax credit (ITC) under the Goods and Services Tax has impacted the Meetings, Incentives, Conferences and Exhibitions (MICE) segment with cancellations and postponement of events, according to the Hotel and Restaurant Association of India.

One of the anomalies that emerged post GST rollout was that MICE activities and other events held in hotels outside of the home State are not eligible for input tax credit (ITC).

“There is an overall reduction in MICE bookings across hotels in India compared to the same period last year. Advance bookings 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. Businesses may have digested the high GST, but without input tax credit, it just becomes unviable. MICE tourism is a very important segment for the nation to overlook,” said Dilip Datwani, President, HRAWI.

“The 28 per cent GST rate for rooms with tariff of ₹7,500 and above is one of the highest in the world and will seriously affect cash flow. Moreover, the tax percentage will be determined based on the published or declared rate which is creating a lot of hardship for the industry. The association has appealed to the Government to remove this condition and determine the tax percentage based on the actual transaction value and has also requested to review the ITC clause for inter-State accommodations,” added Datwani. The disruption following the GST rollout comes close on the heels of liquor ban on highways.

With revenues already hit, this comes as a double whammy. Many hotels will find it difficult to sustain business and may close down or may have to scale down operations and this is expected to result in job losses and de-growth.

“The non-refund or non-receipt of input tax credit for businesses holding MICE 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 outside of 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. We are engaging with the Tourism Ministry in this regard and hopefully the clause will be altered to encompass MICE for ITC,” says Kamlesh Barot, past-President, HRAWI & Federation of Hotel and Restaurant Associations of India (FHRAI).

Clarity on tax

Meanwhile, the hospitality industry recently received clarity on the tax rates applicable for luxury or five-star hotels. Luxury hotels were to levy a default 28 per cent GST irrespective of the room tariffs. However, effective immediately the GST rate even for these hotels will be based on the published tariff rates and only if the tariff is ₹7,500 and above will it attract a GST of 28 per cent