Tax sops, infra top tourism's demand menu

The domestic hospitality and tourism industry was one of the worst hit in the global economic slowdown. The sector, still in a recovery mode, needs major thrust from the government to return to a healthy spot, feel industry experts.

The new government has identified tourism as one of the sectors for revival of 'Brand India', and one which would be key foreign exchange earner and a driver of progress through creation of jobs, enterprise and infrastructure development.

Rajesh Magow, co-founder and CEO-India, MakeMyTrip, said, "The industry faces many challenges, primarily lack of world-class leisure destination infrastructure, high cost of running airlines due to state levies on aviation turbine fuel, airport taxes, etc. Hence, investing in building infrastructure through higher budget allocations to tourist destinations and rationalisation of tax structure will help promote travel and tourism industry."

Highlighting the need for better air connectivity, he said, "Poor infrastructure is why a majority of travellers prefer other countries as they get better value for money there."

The Federation of Hotel and Restaurant Associations of India (FHRAI) said that goods and service tax (GST) should be applied to the industry at a concessional rate of 8%.

"Introduction of a unified indirect tax regime must be leveraged as an opportunity to position India as a price competitive global tourist destination and effectively capitalise on tourism's 'multiplier' effect to accelerate job creation and inclusive growth," FHRAI said in its budget recommendations.

Till the introduction of GST, hotel accommodation and restaurants must be included in the negative list for service tax, it said. This would resolve the present double-taxation, wherein the same revenue base is being taxed both by state governments through luxury tax (on hotel room rent) and VAT (on food & beverages), and the central government by way of service tax, it said.

Rajeev Wagle, managing director, Kuoni India, a travel company, said, "Last year's budget allotted a good amount for the industry, thereby increasing expectations. We hope that this year's budget will do the same. A few issues on service tax need clarifications. We want to look at the operational details of full GST. Some key recommendations include prioritisation of key issues such as safety, infrastructure and rationalisation of taxes."

Hari Nair, founder & CEO, HolidayIQ.com, travel portal, said, "Tourism is still a cottage industry in India and massively underfunded. In the current five year plan, Rs 15,000 crore was allocated to tourism, however, in the last three years only Rs 3,000 crore has been given to the tourism ministry. Globally and in India, tourism has the largest job creation potential per dollar invested than any industry. With the government wanting to focus on tourism as a core priority, more investments have to be made in this domain."

Federation of Associations in Indian Tourism & Hospitality (FAITH) in its budget recommendations has asked for setting up national tourism land holding company (for developing tourism destinations and hotels), which will be the custodian of all surplus tourism land of central and state governments. These land parcels may be bid out on a lease model of tripartite PPP (Centre, state, private player). This will create revenue for both the states and the Centre, and fast-track tourism infrastructure development.

Out of an estimated 12.5 million hotel rooms worldwide, India has less than 0.15 million hotel rooms. This has a direct correlation to India's international market share: The country gets less than 7 million international tourists annually.

Sharat Dhall, president, Yatra.com, said, "We are hoping infrastructural improvement especially in the smaller towns that house key tourism destinations. We are also hopeful that the budget will set aside significant funds for better connectivity by building new airports, and better roads to key tourism destinations."

The last budget mentioned about creation of 50 tourist circuits around specific themes, and also allocated Rs 500 crore for the of five thematic circuits in the first phase. However, some proposed destinations face a serious bottleneck of acute shortage of quality tourist accommodation.

In order to achieve the 12th Plan target of increasing foreign tourist arrivals in India to 12 million and doubling the number of domestic tourist visits, the hotel industry is required to augment its current inventory of classified hotel rooms by 180,000 rooms at a projected capital investment of about Rs 127,500 crore.

To incentivise this investment, FHRAI has recommended that all new hotels and resorts, irrespective of star category, coming up in those Tier II, III and IV towns, which are notified to be included in tourist circuits, should be allowed a tax holiday for a consecutive period of 10 years in a block of 15 years from commencement of commercial operations. Existing hotels, irrespective of star category, in these destinations, should be permitted to avail a weighted deduction of 150% of capital expenditure under Section 35AD for undertaking substantial expansion/upgradation of their properties.

Another recommendation is to lower the minimum project cost mandated for inclusion of hotels in the Reserve Bank of India's infrastructure lending list from Rs 200 crore to Rs 20 crore.

Out of 550 hotel projects with about 84,650 rooms currently under construction, 41% are in the mid-market segment, 27% in budget, 18% in upscale, 9% in luxury and 3% in the extended-stay category. Based on current development costs (excluding land), only 15% of the upcoming hotels will meet the Rs 200 crore infra lending stipulation, FHRAI said.

In a recent report, ratings agency Icra said India has around 29,000 premium rooms under development, to be launched over the next six years. The next big supply of over 6,500 rooms would come in 2016 across Bengaluru, Mumbai, Kolkata and Noida.

Anil Khandelwal, CFO, Cox & Kings, said, "Tourism industry should be treated at par with exporters based on its foreign exchange earnings. Tourism industry gets discriminated vis-a-vis exporters even though the industry earns foreign exchange, and retention of foreign exchange is much higher than any other export-oriented industry. Like exporters, based on foreign exchange earnings, tour operators should also get exemption of service tax on package tours as the payment is received in foreign exchange."

With the service tax added at present, India packages cannot match the prices of holiday packages, which are on offer by competitive countries, he said.

Nair of HolidayIQ.com said there should be a policy supporting creation of special tourism zones (STZs) in India that are safe investments which ensure a steady flow of income across all seasons.

"The Delhi-Agra highway route, for instance, is one with the highest tourist traffic; creating a STZ there with superior infrastructure, better roads and air connectivity would make it a tourism magnet for north India as a whole," he said.

Sanjeev Shekhar, general manager, Hotel Marine Plaza, said, "The expectations from the budget would be on concession, topline taxation and funds layout towards infrastructure improvement. It is imperative that tourist and the corporate sectors are taxed reasonably while making sure the exchequer does not suffer. Excise duty on liquor should be reduced as the sector is suffering due to high taxation, and people are finding it very difficult to afford visiting bars."