Hotels: Service tax levy spoils the party

Budget provisions:

Five per cent Service tax (effectively on whole amount) on hotel accommodation in excess of declared tariff of Rs 1,000 per day charged to the customer.

The levy will be 10%, with an abatement of 50%, effectively bringing down the service tax levy to 5% on the tariff.

Service provided by air-conditioned restaurants that have license to serve liquor, by giving an abatement of 70 per cent. Thus, the effective burden will be 3 per cent of the bill.

Minimum Alternate Tax (MAT) has been increased to 18.5% of book profits from 18%.

. . .

Industry expectations:

Grant Infrastructure status to the Hotel industry: Not fulfilled.

Restore the depreciation rate for hotel buildings to 20% as hotel buildings are utilized for 24 hours: Not fulfilled

Section 80 HHD should be amended to revival of concessions for foreign exchange earnings of the hotels: Not fulfilled

Inclusion of hotel industry under Section 80 IA: Not fulfilled

. . .

Budget impact:

The 5% service tax (net of abatement) on Hotel accommodation in excess of declared tariff of Rs 1,000 per day charged to the customer expected to makes staying in hotels/clubs/guesthouses/restaurants costlier.

Further, 3% service tax on air-conditioned restaurants which have license to serve liquor with an abatement of 70 per cent makes the pubs/bars costlier.

. . .

Stock to watch

Indian Hotels, Hotel Leelaventure, ITC.

. . .

Outlook

The service tax levy has added to the woes of the Tourism and travel industry.

The 5% service tax hotel accommodation in excess of declared tariff of Rs 1,000 per day and 3% service tax on air-conditioned restaurants that have license to serve liquor hinders the growth of the business in near term.

Overall, impact of Union budget is negative.