Maharashtra's branded hotels say luxury tax cut won't help them

The recent decision by the Maharashtra government to offer partial tax relief to the hospitality sector is a move to encourage the unorganised sector, feels the branded budget-to-mid market hotel segment.

In its budget, the state government announced luxury tax exemption for rooms costing up to Rs 1,000 per night, a 4% tax on rooms which costs up to Rs 1,500, and 10% over that. Under the previous structure, a hotel room costing above Rs 750 and up to Rs 1,199 was taxed at 4%, and 10% for those above Rs 1,200.

However, the organised sector is not too happy with this change as the branded category does not benefit out of it. They said room rents at branded hotels start at Rs 2,000-2,500 in the state.

Partha Chatterjee, advisor, Berggruen Hotels, said, "There is nothing for the branded segment and of course nothing for us. Over Rs 1,500, the tax rate has been maintained at 10%, and that goes for all our properties. Berggruen Hotels, which owns and manages hotels under the Keys brand, is funded by the US-based Berggruen Holdings.

The organised hospitality sector has been requesting the government for an increase in the threshold limits for a long time.

According to Kamlesh Barot, past president, Federation of Hotel and Restaurant Associations of India, said, "We have been requesting the government for quite some time to increase the threshold limit to Rs 2,500. Properties at Rs 750 or Rs 1,000 cannot be called luxury and no branded property is available at this level. So the move is more to encourage the unorganised sector like small hotels, guest houses, etc.

Even outside Mumbai, in cities like Nashik, Pune, Nagpur, this is not the threshold limit for good properties. Such move can be looked as penalty for the branded budget to mid-market segment for maintaining standards and quality."

The budget also offers concession in luxury tax for new properties (hotels) or expansion of existing ones in zones B and C cities such as Thane, Navi Mumbai and Nashik. Among other sops, the Budget also reduced the late fee on VAT return from Rs 5,000 to Rs 2,000 for delay up to one month. The turnover limit for registration under VAT has also been increased from Rs 5 lakh to Rs 10 lakh.

According to a hospitality and travel analyst, there is nothing much from the state budget for the sector. "The fight between the government and the industry is based on tariffs and the strange taxation policy.

Increasing the limit from Rs 1,200 to Rs 1,500 at 10% tax rate makes no major difference. It's more of an eyewash. If the quality of the products get compromised, that will create a bad image for the tourism sector," the analyst said.