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Budget 2013-14 disappoints industry

The Union Budget 2013-14 again did not concede the demand of the tourism sector. Moreover, there has been no mention of tourism in the Finance Minister’s speech. The industry was hopeful of getting some sort of sops for the sector from the Budget. However, this Budget has again disappointed. The allocation to the tourism ministry was hiked by Rs 87.66 crores in this Budget. The allocation for the Ministry this year is Rs 1,297.66 crores while it was Rs 1210 crores in the Union Budget 2012-13 and Rs 1110.96 crores in 2011-12. The Budget allocation for plan projects/schemes for the benefit of North East region and Sikkim has been hiked from Rs 121 crores to Rs 129 crores. The allocation under tourist infrastructure is for construction of budget hotels, wayside amenities, tourist reception centers, refurbishment of monuments, adventure and sports facilities, illumination of monuments, providing for improvement in solid waste management and sewage management, procurement of equipment directly related to tourism and rural tourism projects etc.

Despite the tourism allocation being hiked by Rs 87.66 crores, several other demands of the industry have once again been overlooked. High taxation and industry status have been the industry’s demand for time immemorial, but has faced ignorance year after year. Instead, the recently announced Budget further burdened the F&B industry with taxes on AC restaurants. While announcing the levy on all air-conditioned restaurants in the Budget for 2013-14, Union Finance Minister P. Chidambaram said, ”At present, service tax does not apply to air conditioned restaurants that do not serve liquor. The distinction is artificial...”

“Our industry has contributed Rs 94,487 crores in terms of foreign exchange last year and is responsible for generating approximately eight per cent of employment opportunities in the country. Despite this we are given no incentives. We are a highly taxed industry. Last year we were levied with an extra 10 per cent service charge. We demanded a rollback which we were denied and in fact this year the small standalone restaurants have been burdened with the same service charge,” said Jyotsna Suri, CMD, Bharat Hotels and Vice President, Industry Chamber FICCI.

Vivek Nair, President, Federation of Hotel and Restaurant Association of India (FHRAI), revealed that the association had asked for the total abolishment of the Service Tax as it is charged by the Central Government and the State Governments (in the form of Luxury Tax & VAT on F&B) and it has been contended that both the taxes cannot be charged on the same item. “Instead of scrapping the Service Tax totally, it has been extended to air conditioned restaurants exceeding 2000 square feet which do not serve liquor. This would severely impact the restaurant industry throughout the country and collection of Service Tax from thousands of restaurants which would now be covered under this would be extremely high,” he stated.


Agreeing with Nair, Garish Oberoi, Vice President, FHRAI, stated that the industry was hopeful of a supportive Budget after the 12th Five Year Plan. “We have been harping about being over taxed. Additional taxation in this situation is a damper. In fact, even the price rise in cars and marble will add to our service and new project development costs. Overall, this has been a disappointing Budget,” he opined.

Rahul Pandit, President and Executive Director, The Lemon Tree Hotel Company, believes that the right signals would have been including hotels in the infrastructure list and ensuring single digit taxation on hotel rooms. “These measures would not only maintain investment momentum in the sector but also arrest flight of domestic and international demand, currently by-passing India,” he opined.

The aviation industry, which could benefit greatly from financial relief, was graced with some sops, albeit not of the nature the industry had hoped for. The Indian aircraft Manufacturing, Repair and Overhaul (MRO) industry has been given some concessions, which is expected to help Indian airlines lower their maintenance costs and improve the MRO units in the country.

“We had hoped that the Government would have looked at addressing some of the key critical issues of the aviation industry. Improving the infrastructural constraints would have brought down the high aviation cost and helped stimulate overall growth of the industry. A strong focus on regional infrastructure would have been of benefit for bringing in investments from foreign airlines as well for generating employment,” said Ankur Bhatia, Executive Director, Bird Group and Member, National Committee on Civil Aviation (CII).

Peeyush Naidu, Director, Deloitte Touche Tohmatsu – India, informed that the airport sector investments over the 12th Plan period are projected at over Rs 60,000 crores with a bulk of the investments being targeted from private sector. “The Budget has proposed certain measures to promote mobilisation of funds for infrastructure sector in general that could also facilitate investments in the airport sector. Specific to the aviation sector, the budget proposes to provide certain concessions to the MRO industry which is a welcome step given the potential opportunity.”

Expressing concern over the Budget, Subhash Goyal, President, Indian Association of Tour Operators (IATO), stated that successive governments had only ensured that tourism sector is not given any relief. “It is unfortunate that the government is systematically killing the goose that lays the golden egg. This taxation has made India cost prohibitive. The tourism sector is estimated to contribute more than six per cent to the GDP and more than nine per cent to employment. The present service tax level exacerbated by high fuel price will further push down the demand for Indian holidays. The inclusion of AC restaurants and cafes and increase in import duty on high end motor vehicles from 75 per cent to 100 per cent is going to impact the tourism industry negatively,” he said.

Nonetheless, the industry has seen a silver lining in the Budget as well. Madhavan Menon, Managing Director, Thomas Cook (India), opined that Finance Minister has done well: balancing the pressures of populist election-year budget with the reality of looming fiscal deficit-crisis. “We support the Finance Minister’s proposals to promote inclusive growth and spur investments as part of the Union Budget 2013-14. The progressive measures proposed across vital sectors will drive business sentiment and put India back on a strong growth curve,” he said and added that the series of concessions granted to MRO business in the aviation sector will bring down airlines’ operational costs and have a positive impact on their earnings, thereby giving the sector a much needed overhaul.

Goyal too lauded the high plan allocation for infrastructure (roads, hospitals etc) which will bring benefits to tourism.

Rajeev Wagle, Managing Director, Kuoni India, is also in favour of the Budget 2013-14. “The Budget is very pragmatic and stays committed to the path outlined by the Finance Minister towards fiscal consolidation. The GDP growth rate is expected to be substantially better than the low rate of 5 to 5.5 per cent achieved in 2012-13. With major tax reforms like DTC and GST on the anvil, we can expect buoyancy in tax revenues in future. The travel industry looks forward to this growth oriented Budget to improve its fortunes in the next year,” he said.

Sunil Gupta, CEO Avis –India, has a different take on the Budget. He opined that it has remained neutral on travel and tourism. “With tax slabs remaining unchanged, there is not much impact on the car rental industry. It is good that the government has resisted temptation and not gone for a populist budget,” he said.

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