Budget 2012: Grant infrastructure status to hotel industry, says FICCI

NEW DELHI: FICCI in its pre-budget memorandum has reiterated that in the list of Infrastructure projects, hotels may be added just like Railways and Airports. Under Section 10 (23G) of the Income Tax Act, Hotels were added to the infrastructure list so that interest received by Financial Institutions and banks for loans extended to hotels were tax exempted, however the said was discontinued from 1st April 2007.

Grant of Infrastructure status to the Hotel industry will lead hotels to re invest their profits in the hospitality sector, channelize huge investment in the tourism sector and help bridge the shortfall of hotel rooms.

There is a shortage of 1,50,000 rooms that calls for an investment of around Rs 60,000 crores in the coming 5 year period. This investment will lead to substantial employment generation which stood at nearly 49 million as per 2007-08 data.

FICCI has also given the following recommendations for the hotel and tourism industry:

>> RBI's Infrastructure Lending List: Hotels must be included in RBI's Infrastructure Lending List. By including hotels in RBI's infrastructure lending list, the following benefits would accrue to hotels:

> Higher debt equity ratio of upto 4:1;
> Term repayment tenures of upto 15 years instead of 10 years as at present which is totally inadequate for the capital intensive hotel sector;
> Lower interest rate on term-loans compared to the present interest rate regime;
> Availing of 'Takeout Financing' extended to the infrastructure sector;
> Issuance of infrastructure bonds;
> Availing of ECBs of upto US$500 million.

>> Export Industry status to the Hotel industry: Revive Section 80HHD of Income Tax Act 1961, which was discontinued after 2005-06 in respect of foreign exchange earnings by tourism industry.

>> Allow 100% FDI in developing tourism infrastructure in India.

>> Investment in Tourism needs to be escalated. India's investment in tourism is 0.8 to 1 percent of the Budget whereas in countries such as Malaysia it is 5.1%, in China 3.8% and in Singapore 9.1%.

>> Depreciation on Hotel Buildings under section 32 to be increased to 20% from the present 10% as hotels have to make huge investment in plant and machinery due to their running on a 24 hour basis.

>> Tourism should be included in the schedule 1 of the Industries Development Act of 1951 and that all State Governments of India be requested to recognize tourism as an industry so that hotels throughout the country will be able to avail of the benefits under the industrial policy of the respective state governments with respect to:

> Land banks for Budget Hotels

> Exemption of duty on Stamp paper

> Exemption and concession in VAT and Sales Tax

> Property Tax levied as per Industrial rate

> Electricity rates levied as per Industrial rate

> Water charges levied as per Industrial rate

> Single window clearance for new hotel projects

>> With the addition of the service tax in Budget 11-12, India as a destination has by far the highest taxes as compared to the neighbouring destinations:

The above will certainly impact inbound tourists which are already in a very small number and will definitely promote the outbound Indian traveller who finds it cheaper to travel abroad rather than within India. Airfares which are already very high will further become dearer because of the increase in service tax. Independent restaurants' will suffer with an additional 10% tax for being air-conditioned in a country where temperatures soar up to 48-50 degrees.

The industry which is aggressively trying to bolster Domestic Tourism will lose further business to other neighbouring countries. For the travel and tour operators this is a death blow as they all sign their contracts 12 months in advance. This tax will either be absorbed by the individual entrepreneur or he will have to lose the contract. This will amount to loss of revenue as well as credibility in the international market.