Tourism industry looks at Union Budget 2010-11 to fulfil its long pending demands

Travel and tourism industry generally gets a passing reference during the Union Budget speeches made by Indian Finance Ministers. Stakeholders are a disappointed lot after every budget. While issues and demands of the industry remain almost the same, this year, for the first time ever all industry associations got together to chalk out a pre-budget memorandum. HospitalityBiz sums up the expectations from the upcoming Union Budget 2010-11

It is again that time of the year when all eyes turn towards North Block in New Delhi, the Finance Ministry headquarters, with speculations as the Finance Minister gets into the exercise of finalising the annual Budget for the nation. Tourism industry, like any other industry of the economy, is also pinning a lot of hope this time around on the Union Budget. There were mixed reactions from the travel and tourism industry last year after Finance Minister, Pranab Mukherjee announced the Union Budget 2009-10. The capital outlay for Ministry of Civil Aviation (MoCA) was Rs 887 crore for financial year 2009-10, an increase of Rs 31 crore over the previous year (Rs 856 crore), while the Ministry of Tourism (MoT) received a capital outlay of Rs 1,070 crore for the financial year 2009-10, an increase of Rs 23 crore over the previous year (Rs 1,050.53 crore). This year, with MoT proactively taking across concerns of the industry to the Finance Ministry, the industry is hoping that the forthcoming annual Budget will address many of the long pending issues of the industry this time around.

While there is no official version forthcoming from the Transport Bhavan with regards to the recommendations to the Finance Ministry, there are unconfirmed reports that MoT has proposed infrastructure status for the hotel industry in the country to attract more investments into the sector in tune with the growing demand for quality hotel rooms in the country. Similarly, realising the growing importance of Cruise Tourism, MoT is said to have proposed extension of 70 per cent abatement of Service Tax to cruise operators, which has been earlier allowed to tour operators. Apart from proposing the revival of incentives under 80HHD of Income Tax Act to the Tourism sector, MoT also recommended Service Tax exemption for the tourism industry by treating the industry at par with the export industry. Moreover, travel and tourism industry associations on their part had apprised the Finance Minister about the issues and asked for remedial measures through the Budget. A rough reading of these demands reveals that these demands were part and parcel of every pre-budget memorandum of these associations for many years.

What does the tourism industry expects from the Budget?
Major demands of the travel and tourism industry are linked to uneven taxes and levies. Although, each vertical of the industry has their own specific demands, few of the common demands are:

• Infrastructure status to the industry, especially hotels, under Section 80 IA of Income Tax Act.
• Full Export Status to the Tourism industry and abolition of Service Tax.
• Revival of Section 80HHD of IT Act.
• Uniform taxation – Luxury, transport, ATF – across India.

Indirect benefits:
Tourism after all is not an isolated sector. The growth of tourism is intrinsically connected to developments in other sectors of the economy. For instance, good infrastructure in terms of roads, railway and airports is an important element for a tourist destination. The government, through the last few years, has taken commendable steps to increase the plan outlay for development of infrastructure, including National Highways, airports, rail networks in the country. In the last annual budget, there was an increase in the outlay for development of National Highways by about 23 per cent compared to the previous budget. Similarly, there has been a visible improvement in country’s aviation infrastructure after introducing the ‘Open Sky’ Policy and opening up of the sector for private sector players. New airports with world-class infrastructure are in the pipeline in metro cities and other major cities of the country.

Gains in the past:
Apart from passing references, tourism was not given much prominence by successive Finance Ministers. For a change, in 2007-08 Budget, the Finance Minister had announced five-year tax holiday for hotels in the two, three and four-star categories, as well as convention centres with minimum capacity of 3,000 pax, which is operational from April 1, 2007 till March 31, 2010 in the National Capital Region of Delhi. None of the tax incentives sought by the industry were redressed in the budget. The picture was not different in both the Interim budget and Union Budget of 2009-10. The only respite in the last budget was the abolition of Fringe Benefit Tax (FBT) announced for the corporate world.

A prime highlight of Budget 2008-09 was the Central Government’s announcement of a tax holiday for hotel development in 27 UNESCO approved world heritage sites of India. The incentive was restricted to the development of two, three and four-star hotels at these sites with the construction and operation period between April 1, 2008 to March 31, 2013. Industry experts believed that the government’s aim in this regard is to create a mass product while encouraging development of supporting infrastructure in these locations to fulfill tourist needs. Most experts agreed that the tax holiday should have been extended to the entire Indian hotel industry.

Another industry view states that tourist travel to heritage sites is via gateway cities. Thus, with the lack of supporting infrastructure and room inventory in gateway cities, generation of tourist inflow to these heritage sites will be difficult. While many real estate players were keen to cash in on this tax holiday, to either foray into the industry or expand their presence into the sector, not many projects have been heard to materialise. This would also expect to alter the land price dynamics in these regions and also boost budget hotel growth there. Hence, it will only be a wait and watch situation to check on the hospitality development in these regions. In a gist, Budget 2008-09 was a ‘please all’ budget which lacked the vision for growth and a reduction in the monetary allocation for the tourism industry.

Budget 2009-10 was perhaps one of the most eagerly awaited Budget in the wake of the economic meltdown that the tourism and hospitality industry was facing. While the industry was expecting some reforms and incentives to help them cope with the low tourist arrivals and dipping occupancies; the Budget proved to be a dampener to the industry. Regularisation of State Luxury Tax, abolition of Service Tax, revival of 80HHD of Income Tax Act, reduction of taxes on ATF (which directly impacts airfares) were some of the main issues that the industry expected to be addressed by the budget. However, the highlight of Budget 2009-10 for the hospitality industry was only restricted to the abolition of Fringe Benefit Tax, which was of minimal relief to the sector.