Why Are Hotel Taxes So Different?

To host the recently-held first GTM360 Foundation Day, we’d visited three 5* and two 4* hotels in Pune to have a look at their banqueting facilities and get their quotes. When we got a quote with 28% taxes, we were somewhat taken aback. When we expressed our surprise at such a high tax rate, the hotel’s banquet manager told us that it was the rate applied by the government and that they could do nothing about it. We would’ve taken this in our stride except that the very second quote we got had a tax of 22%. The balance three quotes had tax rates of 17%, 24% and 19%.

If each hotel claimed that the tax was determined by the government, we quizzed them, how come their rates varied so drastically from one another? None of the five banqueting managers were able to give us a satisfactory answer.

Now, when we reviewed the break down, we found that the total tax included VAT and Service Tax, among a few other components. Now, as readers would be aware, VAT is charged on products and Service Tax is applicable on services. Since a given item is either a product or a service, it didn’t make sense for both VAT and Service Tax to be applicable on it. When we raised this point, only one hotel accepted our viewpoint and clarified that they were indeed charging only the applicable tax on each item e.g. VAT @ 80% for food and Service Tax @ 20% for serving the food. The other four hotels kept insisting that they would charge both VAT and Service Tax on every item!

Since we still haven’t managed to get a convincing explanation from any of the five hotels, we’re left wondering what’s up with taxes in the Indian hotel industry. We invite readers to share their knowledge and experience by leaving behind their comments at the bottom of this post. Thanks!