The long-pending demand for grant of infrastructure status continues to top the list of Indian hotel industry's Budget wish-list for financial year 2011-12.
The industry has been asking for inclusion in the list of infrastructure projects under Section 80 IA just as airports, ports, etc. With this, the new hotel projects will be able to avail the benefit of deductions of 100 per cent for profits and gains for 10 years.
“We have asked for infrastructure status again as hospitality is a capital intensive industry, and it cannot survive on a high rate of interest. If infrastructure status is given, we will get some benefit of income tax. Also, we will get interest at a low price which will help the industry to grow,” said Honorary Joint Secretary, Federation of Hotel and Restaurant Associations of India, Mr S.P. Jain.
Hoteliers feel infrastructure status will give a fillip to companies to re-invest profits into the hotel sector, eventually leading to more rooms. This in return will also help in lowering room tariffs, making India a more affordable tourism destination and comparable to neighbouring countries like Malaysia, Indonesia and Sri Lanka.
Foreign tourist arrivals in India during 2010 were 5.58 million with a growth rate of 9.3 per cent as compared to 5.11 million, shrinking by 3.3 per cent, during 2009. The growth rate in foreign tourist arrivals for 2010 over 2009 for India is much better than United Nations World Tourism Organisation's projected growth rate of 5 per cent to 6 per cent for the world during the same period, according to the Ministry of Tourism's estimates.
With the global economy rebounding and purchasing power back with people, the hotel industry said there is a huge requirement for quality rooms in India.
Investment-linked deduction
In last year's Budget, the Government had given ‘investment-linked deduction' to the hotel sector. However, the hospitality industry said there is little clarity on how the incentive should be interpreted.
“Under Section 35A, the Government had said that whatever investment you make in new projects, except land and goodwill, will be allowed as a deduction. But this should be allowed to the assesse out of his total income. For example, if he is running five hotels, then the deduction should be allowed in the income of all the hotels,” says Mr Jain.
However, he said that “the language (in the document) is such that it means the deduction will be allowed only for new projects”, and that, he said, is not going to serve any purpose. “Any new unit does not make profit immediately. It will take four-five years for it to come into operations. So the deductions should be clarified,” he said.
In its proposal, the federation has also asked the Government to restore deductions under section 80H for the hotel industry. These deductions are currently provided to exporters on foreign exchange earnings, said Mr Jain. “We have requested that whatever deductions under section 80H were given to the hotel industry on the earnings of foreign currency should be revived. This will encourage foreign exchange earnings for the country,” he said.
Another important demand that the industry has put forth is that leave travel concession or leave travel allowance should be exempted. “It is an allowance for expenses, and it should not be taxed,” said Mr Jain, adding that it will also help boost tourism in the country.