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Budget 2017: Why Fiscal Incentives For The Hospitality Sector Will Serve The Economy Well

31/01/2017 12:27 PM IST | Updated 31/01/2017 12:51 PM IST
Anindito Mukherjee / Reuters

The government's demonetisation drive has given a tremendous fillip to digitalisation in India. The Centre's steady focus on speedily implementing digitalisation supports the long-term economic growth of the nation. The upcoming Union budget 2017-18 is now of critical importance, particularly since the next big bang reform in the form of GST is slated for 1 July.

Such major reforms can sometimes lead to a temporary lull in business momentum, consequently stalling growth briefly during the initial months. Therefore, we expect that the government will unveil a series of fiscal and policy incentives, coupled with reforms in taxation measures and regulatory issues. The travel and tourism industry hopes to see supportive policies that will encourage domestic as well as foreign tourists.

The Indian hospitality sector is already one of the most heavily taxed industries globally, which reduces its competitiveness vis-à-vis other destinations.

The cash crunch during the past quarter led to lower footfalls at tourist destinations and offline activities and purchases, affecting all stakeholders allied with the industry, especially the last-mile and in-destination businesses and vendors.

As travel and tourism supports dozens of ancillary industries, we rely greatly on the Union budget to drive a turnaround and transformation in the industry. For instance, the government could fix the norms for the credit-guarantee scheme. A major fillip can be provided to the industry via infrastructure development, which is imperative for travel and tourism's quick growth and development. To further accelerate growth in travel and tourism, additional fiscal and tax incentives could be given for infrastructure investments.

In the recent past, there has been much talk about lowering corporate tax rates to encourage higher compliance. This is the right time to lower corporate tax rates and boost compliance. The cutback in rates will be compensated by the higher numbers paying taxes, ensuring increased revenues.

If corporate tax rates are not rationalised and lowered, the government may consider a lower tax rate for the hospitality sector. The Indian hospitality sector is already one of the most heavily taxed industries globally, which reduces its competitiveness vis-à-vis other destinations. Similarly, a lower rate of interest on funds for real estate development, especially in the affordable category, will be beneficial as it would boost higher investments and development in the branded budget hospitality segment. Such an incentive would be in sync with the support for small owner-friendly policies, such as the exemption of service tax in the under-₹1000 hotel room category. In line with this policy, we would in fact request the government for a similar exemption under GST with a higher tariff slab (for example up to ₹1500). There is great variance in hotel rates and no guidance around pricing. Therefore, to support small and medium businesses, we also request the government to look into a lower tax slab (than the current 18% in GST) for room tariff less than ₹3000.

The hospitality industry has been creating millions of new jobs, directly as well as indirectly, benefiting millions of workers in dozens of allied industries.

Accordingly, industry status for the real estate and construction industry would also benefit the sector tremendously as funds will then be advanced at competitive rates of interest. In turn, investment in hospitality construction would see an upswing, benefiting both local and global tourists.

Finally, the government should note that the hospitality industry has been creating millions of new jobs, directly as well as indirectly, beneftting millions of workers in dozens of allied industries. With many jobs affected in diverse sectors during the past quarter, fiscal and policy incentives for travel and tourism will prove beneficial for other ancillary industries at large and the economy in general.

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