Budget 2004: Hotels
|
Expenditure tax on hotels removed (from 10% levels earlier) |
|
Continuation of service tax exemption |
|
Exemption of Capital Loans from FIIs u/s 10 - 23 G |
|
Import duty on foreign liquor has been reduced from the existing 182% to 156% |
|
Development of airports, seaports, railways and roadways |
|
The FM acceded to the hotel industry's request for removal of expenditure tax. The exemption of expenditure and service taxes is a positive for the hotel industry. It would make India more competitive as an attractive tourist destination. |
|
The measures taken on the infrastructure development will indirectly improve prospects for the Indian hospitality sector. If these measures are implemented then it will go a long way in promoting India as a well-connected tourist destination. |
|
On the import duty front, the finance minister did make changes in the food and beverages segment. Duties on foreign liquor have been reduced but continue to be on the higher side. However, this would not adversely affect the sector, as the consumption of liquor is not exactly price sensitive. |
|
However, the government has not clearly outlined how it plans to encourage tourist flow, which has remained stagnant at 2.4 m in the last few years. |
|
Repeal or reduce expenditure tax and service tax from the current levels of 10%. |
|
To include the hotel sector under the definition of industrial undertakings. |
|
Rationalize customs duty on imports of foreign liquor. Reduce duties from 210%-182% to a maximum of 50%. |
|
Increase the foreign exchange earned reserve utilization period from the current five years. |
|
Foreign exchange earnings/payments should be excluded from expenditure tax. |
|
Increase in government spending on infrastructure development like creating and developing India as a tourism destination. |
| Budget 2000-01 |
|
Budget 2001-02 |
|
Budget 2002-03 |
|
|
|
|
|
| Withdrawal of tax benefits for earnings in foreign exchange under Section 80 HHD of the Income Tax Act. |
|
Reduction of dividend tax from 20% to 10%. There are no specific recommendations for the hotel sector in this budget. However, the budget encouraged the growth of infrastructure development, which is likely to positively impact the hospitality industry.
|
|
Announcement of plans to divest Hotel Corporation of India (HCI) and India Tourism Development Corporation (ITDC) in the next fiscal. Reduce basic import duty on foreign liquor from 210% to 182%. Expenditure tax to be imposed only on hotel rooms with tariffs in excess of Rs 3,000.
|
| [Read more on Budget 2000-01] |
|
[Read more on Budget 2001-02] |
|
[Read more on Budget 2002-03] |
|
| Key Positives |
|
|
Improvement in occupancy during October '02 and January '03 could indicate that the sector has bottomed out post geo-political environment. Domestic travel has made up for some of the losses on account of drying up of international tourists. |
|
The continuous depreciation of the Indian rupee for the last couple of years has favourably impacted the industry. |
|
The industry continues to benefit from exemption on foreign exchange earnings. |
|
The debut of international hospitality majors on the Indian scene is an indication of a potential healthy market. |
|
The completion of the golden quadrilateral would give a fillip to the industry in terms of better connectivity. |
|
The government spending on the tourism development fund increased by 50% to Rs 2 bn in budget 2002-03. |
| |
| Key Negatives |
|
|
Tourism in India is urban focused. The capex involved in setting up a hospitality property in urban India is very high and thus acts as a barrier for entry. |
|
Luxury and expenditure tax paid by the tourist traveling to India is 30%, which is very high as compared to other tourist destinations globally. |
|
Tourist arrivals growth is stagnant 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. |
|
Geo-political situations have been a deterrent in the growth of the sector. During the first half of FY03 the industry faced a setback owing to negative travel advisories issued by the international community. |
|
|
|
