Industry welcomes investment-linked deduction for hotel development

Union Budget 2010-11 neglects key industry expectations

By Dheera Majumder & Rashmi Pradhan | New Delhi

The central government’s decision to grant investment linked deductions under the Income Tax Act to companies developing hotels (two- star and above) has been welcomed by the industry. In the Union Budget 2010-11 announced recently, Finance Minister Pranab Mukherjee stated, “To give a boost to investment in the tourism sector which has high employment potential, I propose to extend the benefits of investment-linked deduction under the act to new hotels of two-star category and above anywhere in India.”

According to industry experts, this move by the government will help to boost growth of new hotels in the country. It is also expected to attract new players into the market. Keshav Baljee, President and Co-Promoter, Royal Orchid Hotels stated, “After a difficult year, it is heartening to note that the Finance Minister has provided investment-linked deduction to new hotels. This will indeed spur development of new hotels across the country and bridge the existing demand-supply gap.”

Federation of Hotels and Restaurants Association of India (FHRAI), one of the prime bodies representing hospitality industry in the country is also happy with the government’s move. Rajindera Kumar, President, FHRAI stated that this move of the government will aid the upcoming hotel projects which will primarily enjoy the subsidies, provided they are commissioned after April 1, 2010 and subsequently. This view was also seconded by S P Jain, Chairman, Pride Group of Hotels. However, he opined that the government should have extended the benefit to one-star hotels as well; hence, providing the incentive to the entire hospitality industry.

While certain deductions in proportion to investment will be beneficial to the hotel owners while paying tax, the industry remains sceptical about the government’s announcement. Several industry players were of the opinion that the statement lacks clarity and complete information of the amount of deductions in income tax given to the developers is missing. Earlier, this was termed as ‘Investment Allowance’, Jain added.

“This is definitely a good incentive for the hospitality industry; however, financial incentives are investment based. How much will the government incentivise hotel funding will only be clear over a period of time,” stated Param Kannampilly, Chairman and Managing Director, Concept Hospitality. However, the overall increase in the budget outlay for infrastructure to 46 per cent will help the industry in the long run.

Beside this initiative, the government has clearly ignored the industry’s key demands including grant of infrastructure status and provision of single window clearance for hotel projects. With regards to the food processing industry, the government has decided to develop five more mega food parks in the country. However, no clear subsidies or incentives have been given to operating hotels or the food service sector.