Hotel stay, drinking liquor in AC restaurant to be expensive

Consumers will have to shell out more for staying in a hotel or to enjoy liquor in air conditioned restaurants with the government putting these under the service tax net.

While announcing to widen the service tax net, Finance Minister Pranab Mukherjee today said hotel accommodation, in excess of declared tariff of Rs 1,000 per day will come under its ambit although there will be an abatement of 50%.

"The effective burden is only 5% of the amount charged," Mukherjee said.

Moreover, service provided by air-conditioned restaurants that have licence to serve liquor, will also be under the service tax net. After an abatement of 70%, the effective burden will be 3% of the bill, he added.

The Finance Minister, however, retained the overall service tax rate at 10%.

The hospitality sector described as an additional burden the proposal made by Mukherjee in the budget for 2011-12.

"It is negative for the hospitality sector and there will also be an extra burden for the customers," Federation of Hotel and Restaurant Associations of India (FHRAI) Vice President Sushil Gupta told PTI.

There is already over 10% luxury tax charged by states on rooms and there is a VAT on food, the new service tax will make these services more expensive, he added.

This will not only put pressure on the hospitality firms but also the consumers who will have to shell out more from their pockets.

"The demand is likely to get affected, however, the exact impact would be known later. The hospitality sector was hoping to get some relief but, this new announcement has come as an unpleasant surprise," Gupta added.

Expressing similar sentiments, Shervani Hospitalities, Managing Director S M Shervani said: "The customer is already paying extra money over the bill as service charge, but now they will have to pay service tax of 10% as well."