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[ Cover Story] Hospitality (t)axed! Taxes on restaurants and food have increased from 3 per cent to 5 per cent now while the tax on rooms has been increased from 5 per cent to 7 per cent. The announcement made has been a far cry from what the industry was expecting in this year’s Union Budget. FHRAI Magazine attempted to record the opinion of the industry on paper, which suggests that negative impacts of the budget on hospitality are partially matched up with some positives that lie between the lines. Kant Sahai Union Minister for Tourism Government of India We have a tough year ahead and in these difficult times, the Finance Minister has presented a balancing budget which will provide stability in the years to come. Though, it will be tough initially, but in the long run, it will be beneficial and contribute to the nation’s growth “ “Subodh 10 FHRAI MAGAzINE ApRIl 2012 Visit FHRAI Website: www.fhrai.com
Highlights of the Union Budget 2012-13 for Hospitality & Travel Industry [ Cover Story] • Air travel, eating out becomes costlier • Service tax raised to 12 per cent from the existing 10 per cent that will yield an additional revenue of `18,660 crore • GST to be introduced likely in August 2012 • ECB to be permitted for working capital requirement of airline industry for a period of one year, subject to a total ceiling of US$ 1 billion • Direct import of Aviation Turbine Fuel permitted for Indian Carriers as actual users • Proposal to allow foreign airlines to participate up to 49 per cent in the equity of an air transport undertaking under active consideration of the government Kamlesh Barot President FHRAI Against expectations: Despite presenting FHRAI’s pre-budget wish list to the ministry, the Budget looks quite against the hospitality industry. Taxes on restaurants and food have increased by 2 per cent now while the tax on rooms has also increased by the same digit percentage. In fact, in many states, the duplication of taxes is hitting revenue and profit margins of the hospitality players. Earlier, during our interaction with the tourism ministry, we were positive about getting a good budget and were convinced to get certain tax relief, but nothing is visible in the budget. We were expecting rationalisation of taxes in the hotel industry which is nowhere in the picture in the Union Budget. Positives in the budget: First of all I don’t consider this a completely lacklustre budget for hospitality and travel sectors because we did get a few things like for the service tax input tax credit, excise duty exemptions on bakery products, few hotels included in the ‘Harmonised Master List of Infrastructure’, increased Public Private Partnerships, extension of 35AD of the Income Tax Act to new hotels that are not operated by owners themselves, a marginal increase in the budgetary allocation for tourism, enhanced allocation to the NSDF, removal of sectoral restrictions on Venture Capital funds, alignment between central excise and service tax not to be exhaustive. Stringent approach: Though a lot of these announcements have made it a very stringent budget like the increase of service tax and excise duty which is across the board and not only for our hospitality and travel industry, but our service tax abatements have reduced both in the food as well as the rooms when we should have been included in the negative list of services, the budget provides no clarity on the timeline for the introduction of GST and the DTC for this ‘Pro- Poor’ trade, the MVAT implication on all assesses and the TDS levied on immovable properties, will all have a negative impact on the Indian travel trade which will get dearer. Whereas all this will have an effect on the FTAs, as our destination will become more costly compared to our neighbouring countries. Post budget strategy: The service tax increase will surely impact the mainstay of our industry. While we were fighting the Rupee devaluation and the global recession, this move would hit the hotels and restaurants in its growth cycle. Also, hoteliers and restaurateurs need to counter the present scenario and continue to serve customers smartly. They should quickly update their Corporate Guarantee Rates (CVGRs) and Long Staying Guest (LSG) and charter rates to offset the effect of this increase. Aggressive marketing: Hotels will also have to get more aggressive in their marketing promotions. They will have to use OTAs more effectively and also will need to use the dynamics of their own websites to drive more revenues. More effective F&B promotions would be required to drive F&B revenues. Also more value additions would entice guests leading to an incremental business. Visit FHRAI Website: www.fhrai.com FHRAI MAGAzINE ApRIl 2012 11
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