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The Indian hotel industry, at Rs.131 billion in 2010, grew at a robust Compounded Annual Growth Rate (CAGR) of 9.5% over the period FY05-FY10. The industry witnessed its peak in FY08 as it expanded by 33% driven by robust economic development that provided thrust to business as well as leisure travel. However, in FY09 the revenues dampened due to the recession in the US and EU economies coupled with slowdown in the Indian economy. International tourist arrivals in India have increased at a CAGR of 8.1% between 2005 and 2010, reaching 5.3 million. The hotel industry is highly correlated to travel and tourism. CARE Research estimates the hotel industry in India to grow at a CAGR of 11.8% over in the next five years from Rs.131 bn in FY10 to Rs.262 bn in FY15. Over the past few years, the hotel industry has witnessed a shift in the product mix towards the budget and mid market hotels. Renowned hotel companies have launched brands (eg. Ginger by IHCL) catering to the budget and mid-market customers, who were thus far being served by the unorganized sector. As of January 2011, the total count of hotel rooms in India is 130,000 and the country is expected to require additional 50,000, which requires an investment of approximately US$ 6-7 bn (of which 20,000 are of the upscale categories) over the next two to three years, according to World Travel and Tourism Committee (WTCC) estimates. On the global front, India occupies the forty-sixth position among the top sixty tourist destinations globally. However, the country lags behind global peers in the average number of rooms per branded hotel. The countrys ratio of hotel rooms to the population stands at one room per 10,000 people as compared to approximately 1.6 rooms per 100 people in the US. Both domestic (IHCL, EIH and Leela) and international players (IHG, Hyatt, Marriott and Accor) have planned large-scale investments in the hospitality industry. While India has a lot to catch up with some of the developed markets, the current economic environment is enabling increasing investments in the sector which will change the face of hospitality in India by 2020. Going forth, with the continued development of the domestic economy coupled with the revival in global economy, the hotel industry is poised to see a healthy growth over the next few years.
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No change
PRE BUDGET POST BUDGET Levy of service tax on hotels with declared tariff of Rs.1000/day and above with an abatement of 50% so the effective tax burden is 5%. Levy of service tax on Air Conditioned restaurants that have IMPACT
Nil
Service Tax-F&B
Nil
license to serve liquor with an abatement of 70%. The effective tax burden is 3%.
4% for Room Rent Luxury Tax Rs.200 to 1200 /day above Rs.1200/day
Budget proposals
Levy of service tax on hotels with declared tariff of Rs.1000/day and above with an abatement of 50%, so the effective tax burden is 5%. Levy of service tax on AC restaurants that have license to serve liquor with an abatement of 70%, thus reducing the overall burden to 3%.
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Professional Risk Opinion
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Impact on companies
COMPANY NAME Indian Hotel Co Ltd. Kamat Hotels (India) Ltd. Hotel Leela Ventures EIH Levy of service tax will lead to increased costs for the customer. IMPACT COMMENTS
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