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Delhi government reduces luxury tax on hotels, restaurants

Tuesday, June 23, 2009, 14:00 Hrs  [IST]
By P Krishna kumar | New Delhi

The Delhi government has proposed to reduce the luxury tax on hotels and restaurants in the city from the current 12.5 to 10 per cent. The announcement was made by Dr A K Walia, Finance Minister, Delhi during his budget presentation for 2009-10 in the state assembly on June 22, 2009. The minister has proposed an additional value added tax (VAT) of almost eight per cent on tobacco products to offset the loss in revenue due to reduction in luxury tax.

According to the minister, “The luxury tax reduction was announced to provide stimulus to the travel trade industry, which was badly affected due to a decline in the tourism sector. Keeping in mind the demand made by this sector in view of the impending Commonwealth Games and in order to provide much needed stimulus, we have decided to reduce the luxury tax on hotels from 12.5 per cent to 10 per cent with immediate effect.”

However, industry associations have been demanding tax rationalisation. Their demands, like consideration of actual tariff for tax calculation against the published rates and slab system, were not considered by the minister.

Vijay Pande, President, Hotel & Restaurant Association of Northern India (HRANI), said, “While we welcome the decision to reduce luxury tax, we want it to be calculated on actual tariff. We do not do business on published tariff; actual tariff is much below the published one.”

Syed M Shervani, Hon Secretary, HRANI, said, “We welcome the relief, but it is inadequate. The concept of luxury has to be defined first.” Shervani questioned the logic of treating a luxury hotel (Rs 12000 for a room per day) and an average hotel (Rs 2000 to 3000) equally, with regards luxury tax calculation. He said, “We proposed a slab system for luxury tax in different hotel categories to correct the present anomaly, but the government did not consider that.”

The Finance Minister proposed a new Excise Bill for Delhi to substitute 'the outdated Punjab Excise Act, 1914'. The minister informed that the new bill will be in tune with the Government of India’s model excise bill. He said that the new bill will help to rationalise restrictions and regulations involved in the state’s liquor trade.

 
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