All services are products not all products are services.
Definition: An industry which primarily earns its revenue to meet its expenditure by providing intangible products is called a service industry or a service sector.
Examples: Hospitality, Healthcare, Insurance, IT services, Law, Distribution business etc.
The Indian hospitality industry has emerged as one of the drivers of growth of service sector in India. Hospitality sector includes tourism which is one of the top contributor in Indian economy. India being the land of rich heritage, variety in ecology, terrains and natural beauty, has a untapped great potential in tourism and hospitality. It is also most promising industry in terms of employment and GDP growth. It is a part of a service industry which covers the horizon of nearly every industry which is concerned with the satisfaction of a customer. Industry focusses on customer’s happiness.
This industry relies majorly on the extra disposable income and leisure time. Because of this majority of businesses are for tourists.
If disposable income decrease the demand for the services provide by these industry also decreases.
Hospitality industry also includes transportation for tourists, airlines, cruise, luxury trains, restaurant, theme parks and many more.
Taxation Policy pre Goods and Service Tax
In case of a hotel
A hotel where if the tariff would go above INR 1000 was liable for service tax at 15 percent. An abatement of 40 percent was allowed to be brought down on the tariff rates, thus bringing the real rate of service tax to 9 percent. The Value Added Tax, which ranges between 12 percent to 14.5 percent, and a luxury tax would apply on top of this.
In case of a restaurant
The abatement criteria in case of restaurants was 60 percent which means that service tax was charged on top of this, hence the real rate would come down to 6 percent on the food and beverages bills, apart from VAT which was meant to be charged at the same rate of 12 percent to 14.5 percent was also levied on the same.
In case of social functions
Abatement of 30 percent was allowed.
Cascading effect- The end user was the one who was finally liable to pay everything as the burden of the tax was passed to it.
Industry was not getting any input tax credit on the taxes they paid, as central like service tax.
Founded by Ritesh Agarwal Oyo rooms is a hotel aggregator headquartered in Gurugram, Haryana. The company was launched in the year 2012 with the name Oravel stays. Initially it provided a website which listed and enabled people to book low cost accommodations. This followed a marketplace type business model which was similar to Airbnb.
The company then changed its business model to hotel aggregation to become Oyo rooms in the beginning of the year 2013. The aim of the company is to provide standardised services in all the hotels present in its network at an affordable cost. The company started its network with a single property in January 2013 and is reported to have formed a network of over 8000 properties by the end of 2017.
The initial strategy of the company was they entered into a contract with the hotels according to which the company hired a portion of the hotel’s rooms and organised these rooms under the brand Oyo rooms. The service provided by the hotels to these rooms was supposed to follow the brand standards which were set by Oyo. In order to maintain the standard throughout all its partners the company assists the hotels by providing them with the necessary training in service and the supplies required. These registered rooms were supposed to be provided for the customers who had made their bookings via the Oyo rooms website or the mobile app.
Oyo launched its official mobile app in the android platform on April, 2015. In addition to booking the app also provides the user with the facilities to order room service during the stay period, early morning check in etc. In 2016 the company started a programme called as Oyo Flagship following which the company started to lease entire properties such as hotels and guest houses. This led the company to hire its own staff in these properties thus enabling them to control the day to day operations. In June 2016 Oyo launched its own online marketplace called Oyo Bazar. The main aim of this brand is to provide a one stop shop for procurement of supplies which are essential for the seamless day to day operation of hotels. In January 2017, Oyo launched the Townhouse, a brand which was entirely operated by the company. By the end of 2017 the company has its townhouse services in eleven major cities in India.
OYO rooms before GST
Oyo rooms ears its revenues through a take up rate basis where the company charges a commission to the partners of the firm when it is bringing customers. The net take up rate is calculated as
Although the company initially started up with a negative net take up rate it managed to bring up the take up rate to positive in the last quarter of the financial year 2016 and it has been steadily increasing in the following quarters. In addition to this the quarterly realised revenue of the company which has seen a steady increase has reached a value which equals almost twelve times in the past two years.
During the financial year 2014-15 Oyo suffered a loss of INR 21 crores which almost increased 25 times to INR 496 crores in the next financial year with an annual income of INR 32 crores according to business research platform Tofler. This was mainly due to increasing expenses and investment into the firm. However in the financial year. However Oyo was able to prune the losses by 35 percent resulting in a loss of INR 325 Crores.
Impact of GST on Oyo rooms
Oyo rooms has been focusing on budget hotel rooms within the price range of INR 1000- 2500 and hence they attract a tax rate of 12%. Even though this is lower than the previous taxation in several states in states where there was an absence of luxury tax have seen a considerable increase on the tax to be paid. It was also mentioned by the government that the government does not consider the discount provided by the hotel aggregators which meant that the tax which is levied is based on the actual price of the service and not the price paid by the customer.
Another major issue faced by the company was tax collection at source (TCS). GST classified the online travel aggregators as e-commerce operators which meant that they would have to deduct tax collection at source. As the company had to work with multiple travel aggregators they faced some difficulty on deciding on how TCS was supposed to be levied.
Despite these initial complications faced Oyo rooms have been working hard and have adapted to the new GST regime. The company has taken several steps to give a hassle free experience to its customers and partners. Unlike several other travel aggregators who are charging IGST Oyo rooms have registered to GSTN in 28 states across the country and are able to charge SGST thus providing a considerable tax advantage. This can be seen as an advantage to the small and medium scale enterprises when they need to make hotel arrangements for their employees.
The company used its efficient vendor network to its advantage by providing a single vendor registration facility to its partners. Thus when a company is getting registered with Oyo not only they get access to its comprehensive vendor network but also they need not face the hassle of registering to new vendors in the future as the company would take care of all its future bookings. This facility will encourage several properties to partner with Oyo as it greatly simplifies bookkeeping.