Even as the Gujarat government rolls out a red carpet for investments by providing incentives to make it conducive for investors getting into the state, the hospitality industry has set high hopes from the government for tax exemptions, besides other incentives that are promised by the state minister for tourism.
The hospitality industry in Gujarat has been reeling under the high tax regime. The hotel units end-up paying comparatively higher rate on Value Added Tax (VAT) and luxury taxes against other states.
As early as in 2000-2002, the state government had made provision for tax exemption for hotel units, making the state attractive destination for hotel players. But the new policy after 2002 abandoned this exemption and the hotel industry lodged into a complex tax net of service tax, VAT and luxury tax.
SP Jain, managing director, Pride Hotels group is of the opinion that the state was witnessing heavy investment inflow with increased industrial activity happening; hence the state needed to adopt an attractive policy to bring more hotel projects into the state.
"If the state wants to attract investments in hospitality sector there is a need to provide tax exemption for at least three years for new hotel units. Earlier in 2000-2002 the state government had adopted a policy for exempting taxes for new hotel units. But those who sought the exemption have not received the reimbursements so far. We are one of them," said Jain, who is also the president of Hotel and Restaurant Association of Western India (HRAWI).
The state tourism minister, Jay Narayan Vyas had recently announced that the state would provide interest subsidy of six per cent up to the upper limit of Rs 0 50 lakh for new projects taking shape in state. Further, the government will also apply industrial tariff rate in the electricity for the hotel units, which is collected on the commercial tariff basis as of now. An official government resolution will be issued soon in this regard.
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Speaking to Business Standard, Jain said, "Though I have not gone into the details of the entire announcement about incentives, but Rs 50 lakh cap on interest subsidy is very meagre for large projects like four-star and five-star hotels. The government needs to rethink on the demand of the industry."
Echoing similar sentiments, Narendra Somani, chairman and managing director, Bhagwati Banquets and Hotels Ltd., which owns 'The Grand Bhagwati' (TGB) brand, said, "The amount for interest subsidy needs heavy revision, because with this amount even a room of a five star would be difficult to make! There is no doubt that the government is serious about the hospitality industry but there needs further encouragement."
The state has several big hotel players, lined up to make entry with large hotel projects. These include, Grand Hyatt, which is making a 400-room capacity hotel in Ahmedabad, while another is a chain of hotels and restaurant, Kamat Hotels has lined up projects.
According to Ashwin Gandhi, director of Express Hotels, while the move is welcomed by the hoteliers in the state, there are still some equally important incentives like luxury tax and subsidised natural gas tariff, among other things that need to be provided. "An additional FSI upto 25 per cent over and above the permissible limit by the municipal corporations should be granted to the existing as well as upcoming hotels. This will increase the room capacity as well as bring additional revenue by way of tax, like luxury tax, VAT and electricity duty. In addition to this, employment generation will also increase in the state," says Gandhi.
"The government is speaking about single window clearances, but practically there is no such single window clearance. It is very difficult to get your things cleared due to structural hurdles," Somani pointed out.
The industry is expanding at a rapid pace in the state. Other industry sources see the upbeat mood in the business till 2012, post which there seems a dampening impact on the room tariff in the wake of increased supplies of hotels.
"Currently there is a supply deficit of about 10-20 per cent in the state. But once the ongoing projects will be up and running post 2012, there will be stiff competition among hotels. This can bring down tariffs. We expect about 75 per cent occupancy in this scenario," says Somani, who heads one of the leading luxury hotel chains in India.