Luxury tax on hotels should be rationalised
Recognising that tourism is a “big-ticket item” that can not only lead to higher growth but more ‘inclusive’ growth, employing a large number of women, the Economic Survey bats for an image makeover for Indian tourism.
Tourism is among the three service sectors that have shown better performance, with foreign direct investment in the hotel and tourism sector rising by 328 per cent over the corresponding period last year.
The Survey said an image makeover of the tourism sector could be done by encouraging higher investment in tourism infrastructure, including through public-private partnerships. It also pitches for user charges if monuments or tourist sites are developed by the private sector.
Also, it said there was an “urgent need “to look into high luxury taxes that hotels pay to States. These taxes vary from 5-12.5 per cent and, in some cases, are applicable on printed room rates, whereas the actual hotel rates offered to guests are much lower. It was also important to ensure greater cleanliness and safety for tourists, which can help boost the sector.
The Survey pointed out that multiple taxes on hotel and tourism-related activities meant more expensive rooms or fares for tourists.
Rationalisation of taxes and infrastructure status have been long-standing demands of the hotel industry.
The Survey also suggested refund of value-added tax, as in countries such as Thailand and Singapore, to boost tourism.
This will also have a ripple effect on sectors such as textiles and leather manufacturing, as it can lead to high purchase of items in which India is price-competitive.
With world tourist arrivals expected to increase by 43 million every year, on an average, and foreign tourist arrivals in emerging markets expected to grow faster than in advanced economies, a goldmine of opportunity is waiting to be tapped by India, which has a paltry 0.64 per cent share in world tourist arrivals, the Survey noted.
As per the Tourism Satellite Account, in 2009-10, the contribution of tourism to India’s GDP was 6.8 per cent (both direct and indirect) and its contribution to total employment generation (both direct and indirect) was 10.2 per cent.
Noting that domestic tourism was a key contributor to growth in the sector, it noted that the segment is growing at 14.34 per cent CAGR, with 851 million domestic tourists registered in 2011.
The hotels and restaurants sector, which contributes 1.5 per cent share to India’s GDP, was an important sub-component, the Survey said, adding that there was significant potential for wellness tourism, golf tourism and adventure tourism.