ServiceIndustryAllservices are products not all products are services.Definition: An industry which primarily earns itsrevenue to meet its expenditure by providing intangible products is called aservice industry.Examples: Hospitality, Healthcare, Insurance, InformationTechnology services, Law, Distribution business etc. HospitalityIndustryThe Indian hospitality industry has come up as one ofthe drivers of growth of service sector in India. Hospitality sector hastourism which is one of the top contributor in Indian economy.
India being theland of rich heritage, variety in ecology, terrains and natural beauty, has auntapped great potential in tourism and hospitality. It is also most promisingindustry in terms of employment and GDP growth. It is the part of service industry whichcovers nearly every industry which is concerned with the satisfaction of acustomer. The primary objective is customer’s happiness and satisfaction.This industry relies majorly on the availability of extraincome and leisure time. Because of which majority of businesses are fortourists, both domestic and international.If disposable income decrease the demand for theservices provide by these industry also decreases.
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Taxationpre Goods and Service TaxIncase of a hotelA hotel where if the tariff would go above INR 1000was liable for service tax at 15 percent. An abatement of 40 percent wasallowed to be brought down on the tariff rates, thus bringing the real rate of servicetax to 9 percent. The Value Added Tax, which ranges between 12 percent to 14.5percent, and a luxury tax would apply on top of this.Incase of a restaurantThe abatement criteria in case of restaurants was 60percent which means that service tax was charged on top of this, hence the realrate would come down to 6 percent on the food and beverages bills, apart fromVAT which was charged at the same rate of 12 percent to 14.5 percent was alsolevied on the same.
Incase of social functionsAbatement of 30 percent was allowed.ProblemCascadingeffect- The end user was the one who was finally liable topay everything as the burden of the tax was passed to it. Industry was not getting any input tax credit on thetaxes they paid, as central like service tax. ADVANTAGES Disadvantages OYO Rooms Founded by RiteshAgarwal Oyo rooms is a hotel aggregator headquartered in Gurugram, Haryana.
Thecompany was launched in the year 2012 with the name Oravel stays. Initially itprovided a website which listed and enabled people to book low costaccommodations. This followed a marketplace type business model which wassimilar to Airbnb.Thecompany then changed its business model to hotel aggregation to become Oyorooms in the beginning of the year 2013. The aim of the company is to providestandardised services in all the hotels present in its network at an affordablecost. The company started its network with a single property in January 2013and is reported to have formed a network of over 8000 properties by the end of2017.Theinitial strategy of the company was they entered into a contract with thehotels according to which the company hired a portion of the hotel’s rooms andorganised these rooms under the brand Oyo rooms. The service provided by thehotels to these rooms was supposed to follow the brand standards which were setby Oyo.
In order to maintain the standard throughout all its partners thecompany assists the hotels by providing them with the necessary training inservice and the supplies required. These registered rooms were supposed to beprovided for the customers who had made their bookings via the Oyo roomswebsite or the mobile app.Oyolaunched its official mobile app in the android platform on April, 2015. Inaddition to booking the app also provides the user with the facilities to orderroom service during the stay period, early morning check in etc. In 2016 thecompany started a programme called as Oyo Flagship following which the companystarted to lease entire properties such as hotels and guest houses.
This ledthe company to hire its own staff in these properties thus enabling them tocontrol the day to day operations. In June 2016 Oyo launched its own onlinemarketplace called Oyo Bazar. The main aim of this brand is to provide a onestop shop for procurement of supplies which are essential for the seamless dayto day operation of hotels. In January2017, Oyo launched the Townhouse, a brand which was entirely operated by thecompany. By the end of 2017 the company has its townhouse services in elevenmajor cities in India. OYO rooms before GST Oyorooms ears its revenues through a take up rate basis where the company chargesa commission to the partners of the firm when it is bringing customers. The nettake up rate is calculated as Although the company initiallystarted up with a negative net take up rate it managed to bring up the take uprate to positive in the last quarter of the financial year 2016 and it has beensteadily increasing in the following quarters. In addition to this thequarterly realised revenue of the company which has seen a steady increase hasreached a value which equals almost twelve times in the past two years.
Duringthe financial year 2014-15 Oyo suffered a loss of INR 21 crores which almostincreased 25 times to INR 496 crores in the next financial year withan annual income of INR 32 crores according to business research platformTofler. This was mainly due to increasing expenses and investment into thefirm. However in the financial year. However Oyo was able to prune the lossesby 35 percent resulting in a loss of INR 325 Crores.
Impact of GST on Oyorooms Oyorooms has been focusing on budget hotel rooms within the price range of INR1000- 2500 and hence they attract a tax rate of 12%. Even though this is lowerthan the previous taxation in several states in states where there was anabsence 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 considerthe discount provided by the hotel aggregators which meant that the tax whichis levied is based on the actual price of the service and not the price paid bythe customer.
Another major issue faced by thecompany was tax collection at source (TCS). GST classified the online travelaggregators as e-commerce operators which meant that they would have to deducttax collection at source. As the company had to work with multiple travelaggregators they faced some difficulty on deciding on how TCS was supposed tobe levied. Despite these initial complicationsfaced 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 itscustomers and partners.
Unlike several other travel aggregators who arecharging IGST Oyo rooms registered to GSTN in 28 states across the country andare able to charge SGST thus providing a considerable tax advantage. This canbe seen as an advantage to the small and medium scale enterprises when theyneed to make hotel arrangements for their employees. The company used its efficientvendor network to its advantage by providing a single vendor registrationfacility to its partners. Thus when a company is getting registered with Oyonot only they get access to its comprehensive vendor network but also they neednot face the hassle of registering to new vendors in the future as the companywould take care of all its future bookings. This facility will encourageseveral properties to partner with Oyo as it greatly simplifies bookkeeping.