The Telegraph
Since 1st March, 1999
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Hotels seek expenditure tax relief

New Delhi, Feb. 25: The government is considering a proposal to raise the threshold level for the levy of 10 per cent expenditure tax on hotels to Rs 4,000 per room from the current level of Rs 3,000.

The hotel industry is lobbying hard for this relief on the ground that a large number of three-and-four-star hotels have been hard hit by the imposition of the expenditure tax.

At present, the expenditure tax is levied on room charges only and not on food and beverages consumed in the hotels.

The hotel industry has placed two options before the government — either raise the threshold level for the levy of expenditure tax to Rs 4,000 per room, or levy it at Rs 3,000 but with the rider that it should be charged on a “per day per individual basis”. Hotels charge differential room tariff based on single and double occupancy. They reckon that the “per day per individual” rider will reduce the impact that the expenditure levy has had on their business.

A pre-budget memorandum prepared by the Federation of Hotels and Restaurants Association of India (FHRAI) says, “Although expenditure tax of the government is only at 10 per cent, there is a heavy taxation from the state government in the form of luxury tax. Both these taxes are same in nature and there is no justification for taxing the guests on the same item by both the state and the Centre.”

For example, in Tamil Nadu, luxury tax of 25 per cent is levied on published tariff, over and above this the hotel guests have to pay the 10 per cent expenditure tax of the Central government.

The hotel industry is also deeply concerned about the falling average room occupancy levels. The federation expects hotels to suffer a 30 per cent fall in occupancy levels this fiscal.

The depressed conditions have also resulted in large financial losses for hotels, which have opened in the last 2-4 years and have taken loans from various financial institutions.

The association says that post-September 11, international tourism has been severely hit. There has also been a steep decline in leisure travel to India because of poor security perceptions about travelling to India.

This will result in an average decrease of 10 per cent in their occupancy levels during the current financial year, says FHRAI.

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