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Hospitality sector seeks infrastructure status for hotels

26 February, 2013

The capital-intensive hospitality industry, which has been battling an adverse environment owing to government policies including high taxes, expects the Union Budget for 2013-14 to make it easier for hotels to get infrastructure status.

The industry, which has been facing various challenges over development, operations and difficulty in raising debt, has been actively lobbying to ease norms for hotels to get infrastructure status, which would make it easier to raise debt at cheaper interest rates, industry players said.

One of the major provisions that could come in the budget could be relaxation of norms for hotels to get infrastructure status, according to Kamlesh Barot, ex-president of Federation of Hotel and Restaurant Associations of India (FHRAI).

According to Barot, getting this status will help hotel companies to raise debt at a cheaper interest rate and also provide them a longer time period of 15 to 20 years to repay it.

At present loans are given to companies for a maximum of seven years, which makes the projects unfeasible because it takes about four years for projects to get over. Stabilisation of projects takes another two years and hence the duration of payback is too less, according to Rattan Keswani, co-founder of Carnation Hotels. “Giving the industry infrastructure status will boost confidence in the sector,” he added.

“Since we don’t have this status, the industry misses out on many benefits for example electricity costs which at present is so high that it makes the business unviable in some cases,” Sanjay Sethi, CEO of Berggruen Hotels, told VCCircle.

The industry is also seeking extension of visa-on-arrival facility to tourists from more countries, according to Param Kannampilly, Chairman and MD of Concept Hospitality.

Apart from infrastructure status and ‘visa on arrival’, other expectations of the industry from the budget include:

* Increased depreciation on hotel buildings. Hotels were eligible for depreciation allowance of 20 per cent till March 31, 2012. After that, this was scaled down to 10 per cent. The industry is looking for this allowance to be restored to 20 per cent.

*Duplication of Service Tax – the same base of room and Food & Beverage revenue is taxed by the state governments by way of luxury tax and VAT. The additional levy of service tax by the central government leads to multiple taxation and increases the burden of the consumer. The sector is looking at tax percentage to not exceed 8 per cent in totality.

* Extending benefit of service tax exemptions, which are available to other exporters, to hotels and tourism related service providers.

* Exemption from payment of service tax on services rendered by foreign travel agents.

“The industry is heavily taxed which makes hotel rooms in India more expensive and less competitive than hotel rooms in other South Asian countries,” Kannampilly said.

The planning commission has projected that by 2016-17, the sector will support nearly 80 million jobs and foreign exchange earnings (FEE) will rise to $30 billion. The government has set a target of doubling the number of foreign tourist arrivals (FTAs) to 12 million and increase the number of domestic tourist visits (DTVs) to 1.452 billion, within the 12th Five Year Plan (2012-17). The sector is anticipating a shortfall of 1,80,000 guestrooms in the country and to meet this demand the industry is looking at a capital investment of Rs 1,27,600 crore ($23.68 billion) over the next decade.

The sector has seen some big investments from private equity players in the last few years, including GTI Capital and Equity International investing $100 million in Samhi Hotels, APG investing Rs 650 crore in Lemon Tree Hotels and Berggruen Hotels, which owns Keys brand, raising $100 million from Berggruen Holdings, among others.

(Edited by Prem Udayabhanu)


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Hospitality sector seeks infrastructure status for hotels

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