According to the proposal, hotel accommodation with declared tariff of over Rs 1,000 per day will incur the service tax of 10.3 percent, with an abatement of 50 per cent. This will mean an effective burden of 5 per cent of the amount charged. Additionally, air-conditioned restaurants with license to serve liquor will now have to pay the service tax with an abatement of 70 per cent. The effective burden will be 3 per cent of the bill.
Abatement also implies that the government may gradually increase the duties to the announced levels of 10.3 per cent by withdrawing the initial current reduction of 50 per cent and 70 percent respectively, in the future years.
The reaction from the industry has been negative on the expected lines. Vivek Nair, Chairperson, World Tourism and Travel Council India Initiative (WTTCII) and Vice Chairman and Managing Director of Hotel Leela Venture Limited said, “The proposal in Budget to introduce Service Tax would indeed be a retrograde step and would keep foreign tourists away from India, as it is, the state governments has already levied a luxury tax on room charges, which is as high as 12.5 per cent in states like Kerala and Goa.”
He further added that ‘the proposal to impose the Service Tax on room charges would amount to a multiplicity of taxes on the same base amount. Thus, in Kerala and Goa, the total amount of tax on the room charges would amount to 17.5 per cent which, in comparison with other competing tourism destinations like Singapore, Malaysia and Indonesia, which levy only three per cent, amounts to nearly six times the tax.’
Mumbaikars are already paying luxury tax and value-added tax (VAT) and feel the additional tax will hit their business. “The government is leaving us no room to survive in the business. Already patrons complain of a high VAT on their bills. Now with the service tax we will soon see a drop in business," said Kamlesh Barot, president, Hotel and Restaurant Association Western India. Mumbai charges 10 per cent luxury tax.
There is already a VAT of 20-25 per cent on wine and liquor in India. The service tax is going to further inhibit ordering of wine in the restaurants as almost all of them are air-conditioned and will fall under the additional tax net.
Nair has appealed to the Finance Minister to withdraw the proposal in the interest of the growth of the tourism industry, which has set a target of 10 million foreign tourists by 2020. Currently India receives only 6 million tourists who contribute significantly to the wine consumption-especially the Indian wines as they are cheaper and the ex-pats who are habitual consumers of wine with food like to taste the Indian produce with their food.
The government proposes to collect a sum of Rs.8 billion from the service tax on hotels and Rs.5 billion from the air-conditioned restaurants serving liquor. The total of Rs.13 billion ($300 million) is about 30% of the total additional revenue of Rs.44 billion expected from the new service taxes to be added during the coming fiscal year 2011-12. |