Service IndustryAllservices are products not all products are services.
Definition: An industry which primarilyearns its revenue to meet its expenditure by providing intangible products iscalled a service industry or a service sector.Examples: Hospitality, Healthcare, Insurance,IT services, Law, Distribution business etc. Hospitality IndustryThe Indian hospitality industry has comeup as one of the drivers of growth of service sector inIndia. Hospitality sector includes tourism which is one of the top contributorin Indian economy. India being the land of rich heritage, variety in ecology,terrains and natural beauty, has a untapped great potential in tourism andhospitality. It is also most promising industry in terms of employment and GDPgrowth.
It is a part of a service industry whichcovers the horizon of nearly every industry which is concerned with thesatisfaction of a customer. Industry focusses on customer’s happiness.This industry relies majorly on theextra disposable income and leisure time. Because of this majority ofbusinesses are for tourists.If disposable income decrease the demandfor the services provide by these industry also decreases. Hospitality industry also includestransportation for tourists, airlines, cruise, luxury trains, restaurant, themeparks and many more.
Taxation Policy pre Goods and ServiceTaxIncase of a hotelA hotel where if the tariff would goabove INR 1000 was liable for service tax at 15 percent. An abatement of 40percent was allowed to be brought down on the tariff rates, thus bringing thereal rate of service tax to 9 percent. The Value Added Tax, which rangesbetween 12 percent to 14.5 percent, and a luxury tax would apply on top ofthis.
Incase of a restaurantThe abatement criteria in case ofrestaurants was 60 percent which means that service tax was charged on top ofthis, hence the real rate would come down to 6 percent on the food andbeverages bills, apart from VAT which was meant to be charged at the same rateof 12 percent to 14.5 percent was also levied on the same.Incase of social functionsAbatement of 30 percent was allowed.ProblemCascadingeffect- The end user was the one who wasfinally liable to pay everything as the burden of the tax was passed to it. Industry was not getting any input taxcredit on the taxes they paid, as central like service tax. ADVANTAGES Disadvantages OYO Rooms Foundedby 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 lowcost accommodations. This followed a marketplace type business model which wassimilar to Airbnb.The company then changed its business model to hotelaggregation to become Oyo rooms in the beginning of the year 2013. The aim ofthe company is to provide standardised services in all the hotels present inits network at an affordable cost. The company started its network with asingle property in January 2013 and is reported to have formed a network ofover 8000 properties by the end of 2017.The initial strategy of the company was they enteredinto a contract with the hotels according to which the company hired a portionof the hotel’s rooms and organised these rooms under the brand Oyo rooms.
Theservice provided by the hotels to these rooms was supposed to follow the brandstandards which were set by Oyo. In order to maintain the standard throughoutall its partners the company assists the hotels by providing them with the necessarytraining in service and the supplies required. These registered rooms weresupposed to be provided for the customers who had made their bookings via theOyo rooms website or the mobile app.
Oyo launched its official mobile app in the androidplatform on April, 2015. In addition to booking the app also provides the userwith the facilities to order room service during the stay period, early morningcheck in etc. In 2016 the company started a programme called as Oyo Flagshipfollowing which the company started to lease entire properties such as hotelsand guest houses. This led the company to hire its own staff in theseproperties thus enabling them to control the day to day operations. In June2016 Oyo launched its own online marketplace called Oyo Bazar.
The main aim ofthis brand is to provide a one stop shop for procurement of supplies which areessential 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 thecompany has its townhouse services in eleven major cities in India. OYO rooms before GST Oyo rooms ears itsrevenues through a take up rate basis where the company charges a commission tothe partners of the firm when it is bringing customers.
The net take up rate iscalculated 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. During the financialyear 2014-15 Oyo suffered a loss of INR 21 crores which almost increased 25times to INR 496 crores in the next financial year with an annual incomeof INR 32 crores according to business research platform Tofler.
This wasmainly due to increasing expenses and investment into the firm. However in thefinancial year. However Oyo was able to prune the losses by 35 percentresulting in a loss of INR 325 Crores.
Impact of GST on Oyorooms Oyo rooms has beenfocusing on budget hotel rooms within the price range of INR 1000- 2500 andhence they attract a tax rate of 12%. Even though this is lower than the previoustaxation in several states in states where there was an absence of luxury taxhave seen a considerable increase on the tax to be paid. It was also mentionedby the government that the government does not consider the discount providedby the hotel aggregators which meant that the tax which is levied is based onthe actual price of the service and not the price paid by the 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 have registered to GSTN in 28 states across the countryand are able to charge SGST thus providing a considerable tax advantage. Thiscan be 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.