By Saurabh Chaturvedi
Shares of Indian hospitality groups surged on Monday adding billions of dollars to their market cap after the government's decision to lower the goods-and-services tax on the sector last week.
ITC Ltd and Tata Group-owned operator of Indian Hotels Co. added a combined $3.40 billion to their market capitalization in the early hours of trading. Shares of ITC gained 8.3% at 257.50 Indian rupees ($3.62) while Tata Group-owned operator of Indian Hotels Co. surged 8.7% to INR161.15.
Several other hospitality stocks were also higher with Lemon Tree Hotels Ltd. up 9.6% at INR58.95, and Oriental Hotels Ltd. 6.8% higher at INR42.30.
The country's GST Council, headed by the federal finance minister to review the GST rates, on late-Friday announced several changes including rationalization of the GST rates for the hospitality sector.
The panel capped the highest GST rates on hotel room tariffs at 18% from 28% at present, and trimmed the tax on outdoor catering services. The tax cuts would be effective from Oct 1.
The move is expected to boost tourism and help the hospitality sector amid the economic slowdown.
The national elections and suspension of Jet Airways' flights earlier this year dented earnings of the local hotel operators, brokerage Motilal Oswal said in a report.
The decision to lower taxes will help improve demand ahead of the festive and year-end holiday period, and rev up corporate travel demand, it said.
However, the Federation of Hotel and Restaurant Associations of India, a hospitality-sector-focused industry body said the decision was only the "first step."
"The government should consider capping the maximum tax to 12%-15% on hotel tariffs to attract tourists. Not only international, but our domestic tourists are going to Thailand, Sri Lanka or Vietnam partly because of the high tax rate. We need to lower the tax further to get the competitive edge," Gurbaxish Singh Kohli, vice president of the Federation told The Wall Street Journal.
Write to Saurabh Chaturvedi at email@example.com