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Budget Measures |
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Announced plans to complete disinvestment in Hotel Corporation of India (HCI) and India Tourism Development Corporation (ITDC) in the next fiscal. |
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Reduce basic import duty on foreign liquor from 210% to 182%. |
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Expenditure tax to be imposed only on hotel rooms with tariffs in excess of Rs 3,000. |
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Budget Impact |
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The budget did give a feeling of increased thrust towards the tourism industry. The Government seems to be realizing the importance of the sector in earning foreign exchange and creating employment. Many of the announcements were targeted towards the industry wish list. Foreign liquor import duty has been reduced, which could positively impact prices. However, the consuming segment is not very price sensitive. Consequently, demand may not rise commensurately. Also, duties continue to remain prohibitive. |
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The industry had also asked for reducing or repealing expenditure tax to lower hotel charges for tourist. Imposition of several taxes did make accommodation in India uncompetitive. Cutting down the items attracting expenditure tax is a step in the right direction. Supplementary services of hotels could pass on the benefits to the consumer resulting in increased demand.
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Industry wish list |
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Repeal or reduce expenditure tax from the current levels of 10%.
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To include the hotel sector under the definition of industrial undertakings.
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Rationalize customs duty on imports of foreign liquor. Reduce duties from 300%-500% to a maximum of 50%.
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Increase the foreign exchange earned reserve utilization period from the current five years.
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Key Positives |
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Improvement in occupancy during December '01 and January '02 could indicate that the sector has bottomed out post September 11. Domestic travel has made up for some of the losses on account of drying up of international tourists.
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Rupee depreciation over the past 18 months continues to favourably impact the earnings of the industry.
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Although benefits under section 80HHD of the Income Tax Act have been reduced, the industry continues to benefit from exemption on foreign exchange earnings.
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Key Negatives |
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The high level of expenditure tax and luxury tax charged by the government in hotels in India. This has been a deterrent for tourists, as they have to pay an additional 30-40% on their total bills as taxes.
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Poor land reforms in India have kept land prices artificially high. This has made the capital cost of hotel projects, especially in the larger cities, very costly.
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Tourist arrivals continue to grow very slowly due to lack of infrastructure facilities and safety measures. The government's efforts of promoting India as a tourist destination have not been very successful.
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