Hotel Stocks

Apart from a depressed market, another reason for the fall could be a growing belief that the hotel industry will bear the brunt of increased taxes on hotel services and the prevailing tax exemptions under Section 80 HHD will be withdrawn in the coming Budget.

Under Section 80 HHD of the Income Tax Act, 50 per cent of the profits attributed to forex earnings is totally exempted from tax and the remaining portion is also exempted if transferred to a special reserve.

Since the tourism industry is the second largest forex earner in the country, industry analysts feel the government is unlikely to take any adverse steps.

 

But, even if the Budget spares the hotel industry it will not mean the end of its problems. Occupancy rate has declined from 80 per cent in the previous year to 70 per cent in the current year. A stable rupee for the last couple of months has also belied expectations of a higher earnings growth.

As such, more than the fear of expenditure tax and withdrawal of tax exemption, these factors seems to have affected the hotel stocks.