Bengaluru/Chennai: Thousands of hotels, including self-service breakfast and lunch counters across the five southern states will remain shut on Tuesday to protest against the high tax slab of set for the sector under Goods and Service Tax (GST).

The new rates take effect on 1 July.

Already reeling under rising costs of basic commodities, rentals, labour and the recent liquor ban on highways, the placement of the sector in a higher tax slab under the new taxation regime threatens to squeeze footfalls and further erode profits of small and medium hotels, among others.

“Nearly 500,000 hotels to be closed with estimated losses of ₹ 500 crore. In Tamil Nadu, 150,000 hotels will be shut at an estimated loss of ₹ 00 crore," said M. Venkadasubbu, president, Tamil Nadu Hotels Association.

Various industry organisations from Telangana, Andhra Pradesh, Karnataka, Tamil Nadu and Kerala including South India Hotels and Restaurants Association, Tamil Nadu Hotels Association and Bruhat Bengaluru Hotels Association among others have decided to lend its support for Tuesday's hotel closure. Acccording to hotels industry association, total losses is estimated to be around Rs500 crore.

“Despite numerous representations and memorandums to the authorities, the government has proposed a levy of between 5-18 % on the different categories of restaurants and the highest rate applicable for our industry -- a steep levy of 28% GST on hotels with room tariff above Rs5,000," a statement by the Tamil Nadu Hotels and Restaurant Association said.

The GST council finalised four slabs—5%, 12%, 18% and 28%—applicable on services including telecom, insurance, hotels and restaurants in Srinagar on 20 May.

Accordingly, the council has decided that non-air conditioned restaurants (without liquor licence) will attract a 12% tax while all AC and liquor licensed restaurants will attract 18%. AC restaurants inside five-star hotels will be taxed at 28%.

Hotel accommodation costing Rs1,000-2,500 will attract 12%, 18% for tariff range between Rs2,500-5,000 and 28% for hotels with tariff of over Rs5,000. Restaurants with a turnover of Rs50 lakh or below will be under the 5% composition, according to the newly proposed rates. “Small hotels will have to transfer the additional cost to customers, who have already reduced the frequency of eating-out over high costs," said Chandra Shekar Hebbar, president of the Bruhat Bengaluru Hotels Association.

“We are forced to protest to let our customers know that we (association’s) did fight on their behalf if they complain about additional taxes on their bills," Hebbar said.

Achin Khanna, managing director, consulting and valuation (South Asia) at HVS Global Hospitality Services, a hospitality consulting firm, said the GST Council should do away with the contentious 28% tax slab for the services industry.

“Necessity is being equated with luxury," Khanna said of the rule to apply 28% tax for hotels with accommodation tariffs above Rs5,000.

Although the higher taxes may not reduce footfalls, he says that in some cases, the hotel owners will have to bear the cost by reducing his own charges to stay competitive and when offering packages.

The South Indian Hotels and Restaurants Association (SIHRA) is expected to meet Bharatiya Janata Party (BJP) national president Amit Shah on 5 June to decide the next course of action, if the demands are not met.

Nidheesh.M.K from Bengaluru and Yunus Lasania from Hyderabad contributed to this story.

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