Hospitality sector seeks tax rationalisation, industry status

June 7th, 2009 - 12:58 pm ICT by IANS  

By Fakir Balaji
Bangalore, June 7 (IANS) The Indian hospitality sector, hit hard by the economic slowdown and the 26/11 terror attacks in Mumbai, is looking to the government for a “stimulus” in the form of tax rationalisation and recognition as an industry.

“The hospitality sector - especially hotels in the organised sector - is still considered elitist and luxury to be taxed at multiple levels though it generates huge employment and creates investments avenues across the country,” ITC Hotels Division executive vice-president Pawan Verma told IANS here.

Though luxury tax and value-added tax (VAT) differ from state to state, they are compounded by additional charges star hotels are made to cough up for a variety of services, including food and beverages, banquets and recreational facilities.

Apart from direct taxes such as property tax, hotels incur recurring expenditure on renewal of licences for liquor, health club and events they host.

“We hope the new government would consider the hospitality sector, especially star hotels, as a growth driver and factor its singular contribution to business and leisure travel, tourism, property development and infrastructure,” Verma said on the sidelines of the launch of the ITC Welcomgroup’s Fortune Park JP Celestial star hotel here.

In Karnataka, the state government levies 10 percent luxury tax on room and 12.5 percent VAT on actual revenues generated by star hotels irrespective of discounts or tariff concessions granted to guests in off season or on business considerations.

“Rationalisation of taxes and other levies would go a long way in creating a level-playing field for the hotel industry, which has been severely impacted by the economic meltdown, resulting in about 40-50 percent drop in business and leisure travel during the last eight months,” Verma stated.

With property prices in prime locations across cities still commanding premium due to demand and speculation, setting up new star hotels and operating them have become a challenge for the hospitality sector.

“In this context, industry status will have a spin-off effect on the entire sector and attract more players,” Verma said.

More than the financial crisis, the Mumbai terror attack of last November had an adverse effect on the luxury hotel segment, as about 60 percent of the business is generated by overseas guests in large cities.

“The terror attack led to a sharp decline in occupation rates, especially in Mumbai, New Delhi and Bangalore. Negative sentiment and business uncertainty also impacted other activities of the sector spanning food and beverages, banquets, entertainment, health and recreation,” Verma recalled.

He further expressed hope that the coming union budget would have something positive for the hospitality sector.

According to retail consultancy Technopak, the Indian hospitality sector, which includes hotels and restaurant chains, is valued at $23 billion (Rs.113,976 crore/Rs.1.14 trillion). Hotels constitute 75 percent of the total market size.

“The hotel segment is projected to double in size by 2018. About $12 billion is likely to be invested over the next five years. About 40 new international hotel brands will operate by 2011,” the advisory firm said in a recent study.

Added Verma: “It’s time star hotels are not dubbed elitist, as they are no longer a luxury but a segment of the hospitality sector, just as flying and travelling in AC coaches by train or bus have become a necessity rather than a luxury.”

In an attempt to fill the wide gap between the premium segment and the budget hotels in the organised sector, Fortune Park Hotels, a wholly-owned subsidiary of ITC, runs a chain of star hotels with 53 properties and 4,336 rooms across 41 cities in the Indian sub-continent.

JP Celestial is the third Fortune Park hotel in Bangalore, with the two others - Fortune Select Cosmos and Fortune Select Trinity - opened for business in the last 18 months.

(Fakir Balaji can be contacted at fakir.b@ians.in)

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