The Finance Minister's proposal to bring the hospitality sector under the service tax net has irked the hotel industry, which claims the move as a big dampener to tourism.

Hotel accommodation over Rs 1,000 a day and service provided by air-conditioned restaurants that have licence to serve liquor will come under the service tax bracket.

Though the Government has given an abatement of 50 per cent on hotel accommodation leading to an effective burden of only 5 per cent of the amount charged, the industry is not happy.

“It is a retrograde step. Last year the Government had given us investment linked incentive in order to boost tourism in the country. This move is complete opposite of that. This way the taxation scenario will be six times more than what destinations like Singapore, Malaysia and Indonesia charge tourists,” said Mr Vivek Nair, Chairman, World Travel and Tourism Council-India Initiative, and Vice-Chairman of Hotel Leelaventure.

“It is not a very well thought out move,” said the Honorary Joint Secretary, The Federation of Hotel and Restaurant Associations of India, Mr S.P. Jain. “This will be a case of multiple taxation system. We already pay luxury tax ranging between 10 and 20 per cent in some states; and this (the new tax burden) will be above that. With this move we will become the highest tax paying industry in the country.”

The Minister has also said that air conditioned restaurants with license to serve liquor will now be paying service tax with an abatement of 70 per cent. The effective burden of this will be 3 per cent of the bill, said Mr Mukherjee.

“This decision will impact the Indian consumers negatively as they will have to bear the full burden of this service tax by paying higher prices at the restaurants,” said Nirula's CEO and MD, Mr Samir Kuckreja.

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