Infrastructure Status: Does It Matter?

Though the hospitality industry has been accorded with an infrastructure status, many within the industry feel that the benefit is limited only to funds for hotel development and doesn't give the hotel sector any tax holiday fillip to boost hotel development. Express Travel & Tourism presents an exclusive debate between Rajeev Talwar, additional director general, Ministry of Tourism, Government of India, speaking on behalf of the government and Shyam Suri, secretary general of FHRAI, voicing the concern of the hotel industry.

Rajeev Talwar Additional Director General Ministry of Tourism Government of India

Tourism in India is certainly on a high. And if the performance of the tourism and the hospitality industry is to be analysed, then the industry is certainly experiencing good times.

Over the past couple of years the government has been extremely proactive in providing adequate support and encouragement to the industry through various incentives and its worldwide campaign 'Incredible India' in promoting tourism. One such fillip provided to the hotel sector has been the accordance of the 'Infrastructure' status.

In fact under the Section 10 (23) (g) the hotel industry is eligible for funds for development of projects across India. So it is incorrect to claim that the industry does not have infrastructure status. In most cases, certain factions of the industry have not been able to derive effective benefit from the leverage due to their lack of understanding of the incentives offered to the industry.

Today, funds are crucial for the hotel industry to increase room inventory, a luxury that was not available to hotel developers earlier. That is what the government has provided through the infrastructure status.

There are certain tax exemptions under Section 80 IB of the Income Tax Act that the hotel sector has been lobbying for the past couple of years and the finance ministry has been negating their requests on the grounds that a hotel business is a commercial activity. The section deals with providing tax holidays for a certain period of years. However, that is not the most important concern at the moment. The priority is to boost room inventory. Now, whether the finance ministry does award hotel companies, the infrastructure status under Section 80 IB or 80 IA, the next Union Budget shall reveal.

Shyam Suri Secretary General FHRAI

In the current inbound tourism boom, the important of hotels as part of the overall infrastructure that supports the industry, has been brought to light and only redeems our call for being awarded Infrastructure status under Section 80-IA of the Income Tax Act which gives the sector a ten year tax holiday.

This status has been accorded to the roads, ports, telecom and power sector. Now, while the hotel industry had been accorded infrastructure status under 10(23)(g) of the Income Tax Act, that only incentivises institutional lending to hotel projects. At a time when the market is flush with liquidity, this status does little to encourage more hotel projects, particularly in secondary cities and towns as well as largely underdeveloped regions like the North East of India. We have been lobbying with the Ministry of Finance at the Centre, for this status, since the last three years.

The problem, I feel, is one of perception. The government views hotels as a commercial venture rather than an important element of the tourism product that they are promoting globally. If the Incredible India campaign brings in a windfall of tourists, where will they stay, if the room inventory is not proportionately increased.

Hotels have a long gestation period so the prospect of building one outside the metros and key tourist destinations, becomes prohibitive without any incentive forthcoming from the government. In fact, the government did accord the hotel sector infrastructure status under Section 80 IB (five years tax holiday) between 1991 to 1994 and 1997 to 2001. So according the same status to the hotel industry would not then be a precedent and would only be in line with previous government policy.