Needed: Consistency in tax structure

All of India has less ‘registered’ hotel rooms than one city like Vegas!

This shows that there is a lot of room to grow for the Indian hotel industry, especially considering the anticipated growth in the economy.

The recent downturn impacted the hotel development pipeline in the country, with several green field projects either getting shelved or delayed indefinitely. However, with the return of confidence in the market, serious developers have quickly revived their plans.

The present development pipeline, post the shakeout, is now more realistic as the men have to an extent been separated from the boys.

An interesting trend that has emerged over the last few years, more so in the downturn, has been that developers are seeking bankable returns for unutilised assets, particularly in mid-market space. They are leasing hotels and seeking revenue sharing arrangements with hoteliers. It is anticipated that this trend may continue as this often suits both parties.

On the regulatory side, the hospitality sector continues to be taxed heavily and inconsistently by the central and state governments. There is a need for structured, uniformity and rationalisation of taxes. The hospitality and tourism sector needs to be placed on the ‘Concurrent List’ so that this can be achieved.

Luxury taxes vary from one state to the next, often on Rack Rates which are hindrance to the new age of ‘dynamic’ pricing based on supply and demand.

Central and state governments also need to work together to reduce the plethora of licences and permissions needed in the project phase and during operations. The much touted Single Window often means a longer queue.

The government needs to concentrate on delivering superior infrastructure - roads, airports, reliable power and efficient administration and leave the rest to private enterprise. Another area that needs streamlining is the CRZ (coastal regulation zone) regulations where business units set 500 metres away from the high tide line are deemed to be polluting our oceans. In contrast, in the Maldives, bungalows are allowed to be built over crystal clear waters!

Another important area that needs to be addressed is project financing. While everyone keeps talking about interest rates, the bigger requirement is to have longer-tenure debt repayment schedules. In developed countries hoteliers avail of 15-20 year loan repayment schedules (similar to home mortgages) while we have trouble getting a 12-year tenure in India.

The government’s decision to de-link hotels from the real estate secis good news. Projects, quite rightly, continue to be assessed on merits but are not subject to the restrictions placed on lending to the real estate sector.