Union Budget 2010-11 neglects travel and tourism industry

FM includes domestic air journeys under Service Tax bracket

By Krupa Vora | Mumbai

The aviation and tourism industry was once again given a miss in the Union Budget 2010-11 which was presented today by Finance Minister Pranab Mukherjee. While the tourism outlay has been increased to Rs 1050 crore for 2010-11 as against last years Rs 950 crore, key demands of the travel industry like export status for the industry, exemption of Service Tax on Inbound Tour operators; inclusion of ATF in ‘Declared Goods’ list for uniform taxation; abolition of Fuel Surcharge to make air travel affordable within the country, rationalisation of state transport taxes and the recommendation for the formation of a National Commission for Tourism under the leadership of the Prime Minister were neglected. The only silver lining in the budget was the announcement of investment linked deductions under the Income Tax Act to companies developing hotels (two star and above). Overall the Union Budget focused mainly on agriculture, rural development and infrastructure development.

While the Finance Ministry did not meet any expectations of the travel industry it instead has proposed addition of Service Tax on air transport for domestic journeys and international journeys in any class. According to the website www.indianbudget.nic.in, the scope of air passenger transport service is being expanded to include domestic journeys and international journeys in any class.

Speaking with TravelBiz Monitor, Ajay Prakash, General Secretary, TAFI said, “Earlier the Service Tax was imposed only for Business Class on international journeys but the inclusion of domestic journeys under the Service Tax bracket will increase the cost of travel by ten per cent. This will have serious impact on the travel patterns.” Expressing his views Rajji Rai, President, TAAI said, “There is nothing to react. The budget has not addressed any needs of the tourism and aviation industry. The initiative taken by the industry associations to collectively put forth recommendations did not help. I feel the problem is that the tourism industry is not considered as a priority. Also the Ministry of Tourism requires serious lobbying in the parliament.”

Finance Minister Pranab Mukherjee proposes Special Golden Jubilee Package for Goa

By Krupa Vora | Mumbai

A Special Golden Jubilee Package for Goa has been proposed by the Finance Minister Pranab Mukherjee in the Union Budget 2010-11. Under this package, Mukherjee proposed to provide a sum of Rs 200 crore to preserve the natural resources of the state by restoring Goa's beaches which are prone to erosion and increase its green cover through sustainable forestry. The allotment of Rs 200 crore for the preservation of natural resources including beaches will certainly have a positive effect on the tourism industry of Goa.

Speaking with TravelBiz Monitor, Nikhil Desai, Managing Director, Goa Tourism Development Corporation (GTDC) said, “The allotment of Rs 200 crore comes as good news for Goa as it will definitely help the up-gradation and preservation of natural resources, the fragile ecosystem including the beaches. We will take a holistic approach towards spending the allotment in order to have maximum impact of the same.” The allotment also offers an opportunity for Goa tourism to cash on Sustainable Tourism for international and domestic tourists.

While the package will boost tourism industry in Goa, the Union Budget 2010-11 failed to announce any such special packages for other states or meet the recommendations put forth by the travel industry. Expressing his views, Rakesh Lamba, President, Association of Domestic Tour Operators of India (ADTOI) said, “While it is good news that Goa has been allotted Rs 200 crore to preserve the national resources of the state by restoring Goa beaches, the approach taken by the Finance Ministry should have been holistic rather than overlooking other states. The Finance Ministry should have proposed more such packages for other states that could benefit the tourism industry.”

Industry welcomes investment-linked deduction for hotel development

Union Budget 2010-11 neglects key industry expectations

By Dheera Majumder & Rashmi Pradhan | New Delhi

The central government’s decision to grant investment linked deductions under the Income Tax Act to companies developing hotels (two- star and above) has been welcomed by the industry. In the Union Budget 2010-11 announced recently, Finance Minister Pranab Mukherjee stated, “To give a boost to investment in the tourism sector which has high employment potential, I propose to extend the benefits of investment-linked deduction under the act to new hotels of two-star category and above anywhere in India.”

According to industry experts, this move by the government will help to boost growth of new hotels in the country. It is also expected to attract new players into the market. Keshav Baljee, President and Co-Promoter, Royal Orchid Hotels stated, “After a difficult year, it is heartening to note that the Finance Minister has provided investment-linked deduction to new hotels. This will indeed spur development of new hotels across the country and bridge the existing demand-supply gap.”

Federation of Hotels and Restaurants Association of India (FHRAI), one of the prime bodies representing hospitality industry in the country is also happy with the government’s move. Rajindera Kumar, President, FHRAI stated that this move of the government will aid the upcoming hotel projects which will primarily enjoy the subsidies, provided they are commissioned after April 1, 2010 and subsequently. This view was also seconded by S P Jain, Chairman, Pride Group of Hotels. However, he opined that the government should have extended the benefit to one-star hotels as well; hence, providing the incentive to the entire hospitality industry.

While certain deductions in proportion to investment will be beneficial to the hotel owners while paying tax, the industry remains sceptical about the government’s announcement. Several industry players were of the opinion that the statement lacks clarity and complete information of the amount of deductions in income tax given to the developers is missing. Earlier, this was termed as ‘Investment Allowance’, Jain added.

“This is definitely a good incentive for the hospitality industry; however, financial incentives are investment based. How much will the government incentivise hotel funding will only be clear over a period of time,” stated Param Kannampilly, Chairman and Managing Director, Concept Hospitality. However, the overall increase in the budget outlay for infrastructure to 46 per cent will help the industry in the long run.

Beside this initiative, the government has clearly ignored the industry’s key demands including grant of infrastructure status and provision of single window clearance for hotel projects. With regards to the food processing industry, the government has decided to develop five more mega food parks in the country. However, no clear subsidies or incentives have been given to operating hotels or the food service sector.

The Travel and Tourism industry is once again being totally overlooked in this Union Budget. The industry has time and again put forward its recommendations but has been always neglected by the Government of India. The tourism industry should have got industry, export and infrastructure status which boost the tourism industry. Except for the investment linked deduction to two-star and above hotels, the budget does not really offer anything to the industry. The implementation of Goods and Services Tax and Direct Tax Code is still unclear.

The positive that we can take from this year’s budget is the increase in the exemption limit for income tax payers. Increased disposable income will benefit the travel industry as people’s propensity to spend would go up. The travel industry always wanted an early implementation of the Goods and Services Tax (GST) and the announcement of it coming into effect from April 2011 is a positive step, as this would lead to rationalisation of taxes for the travel industry and bring down the cost of travel. Whilst we would have to see the fine print on indirect taxes, the government’s decision on this is welcomed. In terms of infrastructure, the government’s move to set aside 46 per cent of the plan expenditure for infrastructure will go a long way in improving connectivity and make travel more easy and accessible. Fiscal deficit is under control and that will hugely help the overall economy. Overall, we believe that it is a good budget which will help in the growth of the economy.