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Run up to the Budget: Hotel sector

Background

• The tourist arrivals in India are seasonal in nature with the best period generally being from September to December.

• Occupancy Rates of domestic hotels have seen an upward trend in FY 2000-01. Also, due to the seasonal nature of this industry, Occupancy Rates have gone up substantially in the third quarter of FY 2000-01.

• The Average Occupancy Rate (AOR) of four hotels in Delhi viz., The Oberoi, Maurya Sheraton, Taj Mahal and Taj Palace has gone up to 69.25% in the third quarter of FY 2000-01 against an average of 43.82% in the first two quarters. In Mumbai, the average AOR of The Oberoi, Taj Mahal and The Leela has gone up to 67.37% in the third quarter compared to an average of 52.7% in the first two quarters.

• Average Occupancy Rates (AOR) of domestic hotels on all India basis stood at 52.4% in FY1998-99 and declined to 51.7% in FY1999-00.

• Average Room Rates (ARR) have also gone up for most of the Mumbai hotels during Nov-Dec 00. Delhi hotels, however, have not seen any noticeable rate revision.

• During 2000 total foreign exchange earnings from tourism crossed all previous records and touched Rs144.08 bn. It was 10.5% higher than the earnings of 1999. In dollar terms the earnings were US $ 3,282.88 mn, which too was 8.1 % higher than earnings in the previous year. Tourism emerged as one of the main sources of foreign exchange earnings during the year after IT and Textiles.

• Total tourists' arrival in the country during 2000 was 2.62 mn, 5.7% higher than the previous year. In Dec 00 alone, more than 0.28 mn tourists visited the country.

1. Income Tax concessions available to hotel industry under the Income Tax Act are expiring on 31/03/01. As per the current provisions of section 80-IB, a hotel which has started its operations between 01/04/97 and 31/03/01 enjoys a deduction of 30% or 50% from the taxable profits, depending on the location, for a period of 10 years. It has been recommended that this benefit may be extended for a period of five years starting from 01/04/01.
2. Hotel Expenditure Tax (HET) of Central Government should be abolished.
3. If HET cannot be totally abolished, it should not be charged from foreign exchange paying guests. Foreign exchange earnings of hotels are equivalent to exports made by the traditional exporters. As no local taxes are levied on exports, HET should also not be charged on the foreign exchange paying hotel guests.
4. Service Tax should be abolished for hotels and restaurants which is currently being charged from them as Mandap Keepers. Hotels and Restaurants are already paying other taxes like expenditure tax and sales tax on the same bills and services on which service tax is charged and there is no justification for multiple taxation from the customers of banquets and conferences in hotels.
5. Hotel industry should be given the infrastructure status under the Income Tax Act, as is available to ports, power, communications, roads and airports.
6. An amendment should be made in Section 4 of the Expenditure Tax Act which gives concurrent concessions to certain preferred places which enjoy 50% income tax exemption under sub section 7(a) of section 80-IB of the Income Tax Act. This Section has placed a cap of 31/03/01 and 31/03/08 for availing of the concession. This cap of closing dates should be removed so that all Hotels which come into operation between the period of 1/04/90 to 31/03/94 and 1/04/97 to 31/03/01 should get the concession for a uniform period of 10 years.

Indian Hotels, East India Hotels, ITC Hotels, Asian Hotels, Hotel Leela Ventures, Oriental Hotels, Bharat Hotels etc.

Rediff-Dun & Bradstreet Budget Impact Analysis
Budget 2001

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