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Shubhra Tandon

Mumbai, June 27 Last fiscal was not the best of times for the hospitality and tourism sector. The global slowdown coupled with the Mumbai terror attacks in November 2008 hit revenues by 30-40 per cent, compared to 2007-08 levels. Mr Vivek Nair, Managing Director, Hotel Leelaventure, spoke to Business Line on the industry’s wish-list from the Budget.

What does the hotel industry want from the Finance Minister?

Primarily, we would like hotels to be classified under the infrastructure umbrella. Though we have been seeking this for long, this should hopefully come through now. Hotels were in the infrastructure list under Section 10 23(G) of the Income-Tax Act till 2007. The Government has already allowed benefits under Section 80 I (A) to airports, ports, roads and inland waterways in the private sector. So we have a case now.

Should this not happen, we would like Section 80 I (D) to be extended nationwide and the tax break to be extended to 10 years in line with the infrastructure industry.

What other benefits could accrue with the infrastructure status?

For a decade, we benefited from 100 per cent deduction on profits. Till 2007, the RBI also gave us the go-ahead for External Commercial Borrowings and Foreign Currency Convertible Bonds. This has now stopped as we are not on the infrastructure status list and we are only eligible for it on an ad hoc basis.

The other benefit is you qualify for long-term, from 12 to 18 years, loans from financial institutions and banks. At present, we are given seven/eight-year loans when it takes two-three years to build a hotel and the initial two years are the gestation period. The net result is that one has hardly begun operations when repayment begins. Further, interest on loans is nearly two percentage points lower when we are in the infrastructure category.

Is rationalisation of the luxury tax another issue you would like to see dealt with in the Budget?

The luxury tax is a State subject. We have only indicated to the Centre that when the empowered committee of State finance ministers meets, the Minister for Tourism could recommend a rational rate across the country. Today, it is 15 per cent in some States while in others it is charged on the published, and not actual, rate which is absurd.

However, we want the Centre’s involvement on the service tax issue. The Finance Minister had given a fillip to all hotels being built in the National Capital Region ahead of the Commonwealth Games. However, this was confined to hotels up to four-star category. The reality is that most are five-star (including five-star deluxe). We have sought their inclusion in this list.

A five-year tax holiday was also given to hotels that would be operational before March 31, 2010 but with the long drawn out approval processes, I am not so sure if anyone can meet this deadline. Since the Games are scheduled in October, we have requested that this be extended at least till end-September or another reasonable date.

Are there other areas that trouble the hotel industry?

Till March 31, 2007, the Centre had permitted 20 per cent depreciation on hotel buildings but this is now down to 10 per cent since September 2007. We would welcome higher depreciation since hotels run round the clock and the wear and tear is naturally faster.

We also understand that the income-tax authorities have been disallowing hospitality facilities located in the North-East as well as Uttarakhand and Himachal Pradesh the 100 per cent deduction from profits and gains under Section 80 I (C) to promote eco-tourism. We have sought a review of this.

Bread, biscuits, chocolates and ice-creams prepared in hotels are charged excise duty. Under the Act, earnings of up to Rs 1.5 crore are exempt from excise duty and we have asked that this apply to us too. Even with sales from our bakery, it would not exceed that amount.

Would a revival of the real estate sector help the hotel industry?

In the last four-five years, realty players such as Unitech and DLF got into the hotel development space. Nearly 80 per cent of those projects have got stuck because the promoters are strapped for cash. To that extent, if fortunes of the real estate sector improve, it will help these developers complete their hotel projects.

More Stories on : Interview | Hotels | Budget

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