The Federation of Hotel and Restaurant Associations of India (FHRAI) has weighed in with its pre-budget expectations for fiscal 2015-16.
In a lengthy memorandum forwarded to the government via the finance ministry, Asha Juneja, the Assistant Secretary General of the FHRAI, called for weighted direct tax deduction for hotels under Section 35AD of the Income tax Act 1961.
Juneja said that this section of the Act allows for 100 per cent deduction of capital expenditure for "building and operating, anywhere in India, a hotel of two-star or above category as classified by the Central Government".
She said that in order to achieve the 12th Plan target of increasing Foreign Tourist Arrivals (FTAs) in India to 12 million and doubling the number of Domestic Tourist Visits (DTVs), the hotel industry is required to augment its current inventory of classified hotel rooms by an additional 180,000 guest rooms at a projected capital investment of about Rs. 127,500 crores.
Incentivizing this staggering investment, she said would require a weighted direct tax deduction of 150 per cent under Section 35AD of the Income Tax Act, 1961, she said.
According to the FHRAI memorandum, India currently has one of the lowest per capita hotel room penetration rates in the world, reflecting the vast untapped potential of the hospitality sector, and the FHRAI feels that that a higher tax deduction for hotels will provide a major impetus in bridging serious competitive shortfalls, besides generating large-scale jobs across the country.
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Juneja further stated through the FHRAI memorandum, that all sectors included within the ambit of Section 35AD are capital-intensive and are in a position to generate substantial socio-economic benefit.
The FHRAI also called on the government to suitably leverage productive tourism assets such the privately-owned heritage residential buildings.
It also sought a special package of fiscal incentives for augmenting tourist accommodation while praising the government's vision of promoting the broad-based growth of the Indian tourism sector.
However, in this regard, it cautioned the government about a serious bottleneck existing in the form of an acute shortage of quality tourist accommodation, which it said needed to be urgently addressed.
On the issue of hospitality infrastructure, the FHRAI said the government should permit selected term lending, and allow financial Institutions to issue tax-free hospitality infrastructure bonds of 15-20 years validity and duration to exclusively support asset creation in the hospitality and tourism sector and reduce the industry's reliance on banks for long-term funding requirements.
The FHRAI also sought amendments in the Finance Act 2009 and specifically in Section 206AA, with regard to non-submission of PAN inviting a higher tax deduction by the payee. It said that the existing provision does not recognize the practical difficulties of the deductor, especially relating to non-residents.
It said that the 20 per cent TDS provided under section 206AA adds to procurement costs of services, and it was recommended that non-residents be kept out of the purview of Section 206AA. Further, the FHRAI said that the default rate should be reduced by half to 10 per cent.
It also recommend that under Section 194H, commissions on hotel bookings be treated on the same lines as under Section 194C, wherein payments made to transporters, are exempt from TDS if the transporter submits PAN details.
The FHRAI welcomed the early introduction of a Goods and Services Tax (GST), saying that that this significant reform can potentially bring simplification and rationalization of the indirect tax system and give a fillip to investments and economic growth.
"It is an initiative that we enthusiastically support. We reiterate our commitment to extend constructive cooperation and assistance in the transition towards and successful implementation of the new tax regime," the FHRAI memorandum said.
. The FHRAI, however, said that if tourism is recognized as one of the most price-sensitive of industries, it is imperative that GST is applied on the hospitality and tourism sector at a concessional rate of eight percent.
. It felt that lower tax rates will stimulate higher demand and thereby, progressively broaden the total revenue base on which GST is levied, resulting in a net fiscal gain to the exchequer.
. It said that services for which payment is received by hotels in convertible foreign exchange should qualify to be zero-rated under the GST regime.
. In order to achieve the overarching goal of a transparent, streamlined and efficient tax system, there should be no exclusions, either in terms of certain product categories (like alcoholic beverages, petroleum products) or local-levies like entry tax and octroi, from the ambit of the GST. Such exclusions would lead to tax cascading, create distortions in the credit chain and significant compliance-related complexities for small and medium taxpayers, thereby being counter-productive to the very fundamental objectives of introducing GST.
. The draft modalities and procedures proposed to be applicable under the GST regime should be placed in the public domain at least six months in advance.
. Till the introduction of GST, hotel accommodation and restaurants must be included in the Negative List for service tax. This would resolve the anomalous double-taxation that presently exists.
Among its final recommendations were the following
1. Lower the minimum project cost mandated for inclusion of hotels in the RBI's Infrastructure Lending List from Rs.200 crores to Rs.20 crores.
2. Allow the hospitality and tourism sector to be eligible for the 5:25 Scheme, wherein projects in infrastructure and core industries can avail long-term debt financing with flexible structuring.
3. Hotels should be allowed to avail take-out financing so that External Commercial Borrowings (ECBs) can replace their Indian Rupee Debt.
4. Include hospitality establishments in the RBI's Small and Medium Enterprises for employment generation and skill development.
5. Remove administrative complexities and operational issues in claiming subsidies under NEIPP, 2007 to accelerate industrial development in north-east India.