Hilly hospitality may cost less

NEW DELHI: Buying hotel and resort properties located in hill stations after Budget 2007 could turn out to be a good investment avenue. The Centre is considering a no-tax regime for 10 years for hospitality projects in hilly states that include Sikkim, Jammu & Kashmir, Uttaranchal and Himachal Pradesh. Also, hilly states have been asked to reduce stamp duty on purchase of land to promote the hospitality sector.

Industry players point out that if the no-tax regime for specific tourism projects comes through, then those in these sectors would not be required to pay taxes for 10 years from the date of commercial operation of the property. ���Around 50% of the profits should be tax exempt, provided the funds are ploughed back as investments. This will encourage the existing players to invest further into tourism sector,��� an industry source said.

However, a senior tourism ministry official pointed out that this has to be followed up with incentives from the state governments to encourage setting up of hotels and tourism related industry by providing land at rates lower than prevailing market rate. ���The states need to provide exemption of stamp duty on purchase of land for hotel and tourism, especially in rural areas,��� the official added.

The hospitality industry is facing severe shortage of hotel rooms, with the need to double its room inventory of one lakh over the next three years. National Capital Region needs 30,000 additional rooms by 2010 due to the Commonwealth Games.
Inflow of foreign tourists to the country is expected to touch the five-million mark annually in the next couple of years, from 2006-level of 4.25 million. Domestic tourist traffic is expected to clip along at a rate of 15% annually.

The Centre has also proposed rationalisation of state luxury tax rate to 5% or 10%. The levy currently varies from 5% to 20%. Budget hotels ��� three-star and below ��� need not be taxed more than 5% luxury tax, a tourism ministry official said.