Small, medium hotels in HP worried over new tax formula

Himachal Pradesh's hotel industry wants the state government to withdraw the proposal, because tourism is the backbone of the state's economy

Small and medium-scale hotels in Himachal Pradesh are running from pillar to post to ensure that their voice is heard on the new luxury tax which is likely to be implemented very shortly under the Himachal Pradesh Tax on Luxuries (in Hotels and Lodging Houses) Amendment Act, 2013.

According to sources in the state's tourism department, the tax was earlier levied on the actual amount that hotel guests were charged; now it will be imposed on the approved (printed) tariff of the luxury accommodation provided by the hotel or on the charges fixed by the government, whichever is higher. This is being done to augment the luxury tax base and prevent leakages.

Commenting on the HP government's proposal, Ajit Butail, convenor of CII's Himachal Pradesh committee on tourism, said that there is serious concern within the hotel industry in the state about the proposal. Based on the industry's feedback, he said, a representation had been submitted to the state government seeking annulment of any such proposal.

"We understand that the government is contemplating levying a luxury tax on the rack rate for hotel rooms, as against the previous system of charging it on the actual amount that consumers were charged. This will severely affect the hospitality industry in the state, which is already among the highly taxed segments in the state," he said.

The tourism industry in the state is already under stress in the aftermath of the Uttarakhand cloudburst and landslides, and the new tax could further aggravate its problems, he noted. Tax is universally a percentage of the amount received and cannot be on an amount that is not realised, which would lead to over-taxation, he observed.

Butail added: "Tourism is a vital sector for the economy of the state with multiplier effects on entrepreneurship and employment in the state. There is a need to make collective efforts toward leveraging the inherent strengths of the state and incentivising the related segments to move tourism in Himachal Pradesh up the value chain."

Akash Garg, director, Timber Trail Resort Ltd, said that that hospitality sector was already over-taxed in state. "We pay 10 per cent luxury tax and 7.42 per cent service tax. The present system allows us some amount of flexibility as we can offer some discount to corporate clients who get us bulk business. The lean months witness low footfalls and a discount on room tariffs helps to meet our variable costs."

HP's hotel industry wants the state government to withdraw the proposal, because tourism is the backbone of the state's economy. There are close to 100,000 hotel rooms in HP, a large part of them in small and medium-sized hotels.