FNB News - WB govt treats hospitality industry as a milch cow

You can get e-magazine links on WhatsApp. Click here

F&B SPECIALS

WB govt treats hospitality industry as a milch cow

Saturday, 08 March, 2008, 08 : 00 AM [IST]

Satarupa Chakraborty, Kolkata

A major host in the country's industrial boom, eastern India fails to respond as a flourishing hospitality hub due to the state government's stringent taxation rules. Alok Chowdhury, chairman, Hotel & Restaurant Association of Eastern India (HRAEI), points out various taxes imposed by West Bengal Government that are not commensurate with the targeted goal set by the hospitality industry in this region.

"Up to over 650% hike introduced in the state budget for 2006-07 in luxury tax payable by air-conditioned restaurants in West Bengal is reflective of the state's lack of interest in the investors in the industry", he says. The Association has also pleaded repeatedly for the reduction in luxury taxes on hotel rooms from existing 10% to 6%, and to increase the threshold for this tax from the present Rs 500 per day to Rs 1,000 per day. The change in excise duties and other formalities such as reduction in bar licence renewal fee have also been discussed with the ministry. Although these issues have gone almost unheeded, the state government is paying attention to the Association's demand to bring down the VAT on LPG for the industrial use from the existing 12.5% to 4%. This will take effect as soon as the financial Bill is passed in the West Bengal legislature and notified later.

With the taxation issue, the land acquisition problem should also be addressed. In order to avoid problems like conversion of land (from agricultural to industrial) and acquisition of the best available lands, the ideas like Assembly of Land Bank has been introduced. In the North East, Chowdhury feels, "it is the constant civil disorder that is discouraging any industry and therefore, the hospitality sector in this region, while Sikkim is playing a far exception. Sikkim tourism has garnered a huge amount of revenue in recent years."

HRAEI has submitted the pre-budget memorandums to the state gtovernments of West Bengal and Assam requesting to review the tax structure applicable to the hospitality industry in this region. The requests have been made a number of times without any action being taken so far.

On the tax structure available in eastern India, Alok Chowdhury, secretary general, HRAEI, comments, "State legislatures generally impose most of the taxes, levies and financial policies, while the Central Government is responsible only for the service tax. That's why there is a lack of uniformity. In the eastern region, 20% of luxury tax is applicable in Meghalaya, while Sikkim has no luxury tax structure available. We have pleaded for uniformity or a close alliance of the tax structure available with the states." According to the 2006-07 budget, the West Bengal government has experienced an increase of a whopping 650% in the luxury tax category, while the 12.5% VAT came into existence. "Our memorandum has appealed for the reduction on luxury taxes from 10% to 6%, to raise the threshold to levy luxury tax on hotel rooms from Rs 500 and to turn the rate of electricity from consumer rate to the industrial one, considering the hospitality sector as an industry. The VAT applicable on the LPG should also be taken into consideration," adds Chowdhury. He also cites the example of the Central government's consistent effort to reducing the income tax from 96% to 30% and wants the state governments to review the structure to augment the hospitality business. On the memorandum submitted to the Assam government, Chowdhury informs, "Assam government is requested to reduce the VAT from 12.5% to 4% on the food items. The north-eastern states should concentrate on earning more revenue through the encouragement of the business, not through making the tax structure difficult to access."

HRAEI has also requested for a pre-budget meeting with the state Governments to discuss these issues. The Department of Tourism, government of West Bengal, plans to formulate a land bank to support the growing need of hotel spaces in the state.

The Tourism Department, being approached by a huge number of hospitality properties demanding proper land to set up their projects especially in Kolkata and north Bengal, wants to adopt a new approach towards their already existing Incentive scheme (formulated in the year 2004) where land issue becomes the priority.

"Over the past few years, we have been witnessing a severe dearth of land in the state conducive to hotels and resorts. Although we don't provide land directly to these properties, HUDCO also has been consulting us for this issue. The industrial congestion has put us in a position to form a planned land bank that would not only offer lands, but would help in transformation of the type of land. This would be most applicable to Kolkata," said Prashanta Dutta, Assistant Tourism Director, Department of Tourism, government of West Bengal. Unlike the projects at Kolkata Municipal Corporation (KMC) area, the ones under urban area (consisting of townships and places bordering the main cities in the state) and rural/hill area are given proper support in terms of lands, subsidies and other finances by West Bengal Tourism's latest Incentive Scheme.

Dutta said, "Since our latest tourism report clearly indicates huge requirement of hospitality projects, we have managed to distribute lands to a number of properties in places like EM Byepass, New Town at Rajarhat and Rashbehari crossing in Kolkata. The projects at the tea tourism sites in the north Bengal are facing the problem of suitable land conversion. The agricultural lands there are not favourable for industrial sites." The department has failed to distribute lands to big projects by Cindrella Hotel, who demanded a 10-20 acre land at New Town, Rajarhat and Hastings Jute Mills who proposed a 5-star property in a 5-acre land.

"We have resorted to our consultants Earnest & Young and WEBCON to carry out the test and assessment of the lands. Once they submit their reports, we would be able to plan an organised Land Bank in order to give a fillip to the hospitality sector," Dutta adds.