Pre-budget expectations for tourism and hospitality industry

In a few hours from now, Finance Minister Nirmala Sitharaman will present the Union Budget in the Parliament. Like many other sectors, the travel and tourism sector too has some wide-eyed expectations. A significant contributor to the country’s economy, the travel and tourism sector plays an important role in holding together the economic fabric of the nation at a microscopic level. According to a World Travel & Tourism Council (WTTC) report, it is projected to contribute Rs 21.15 trillion to India’s GDP in 2024. In 2023, the sector’s contribution to GDP grew by 5.9 per cent, reaching up to 9.8 per cent.

In the 2024 Interim Budget, the Finance Minister allocated Rs 2,449.62 crore to tourism sector, a 44.7 per cent increase compared to the revised figure for the current fiscal. This marked a positive change from the 2023 Union Budget’s initial allocation of Rs 2,400 crore, later revised to Rs 1,692.10 crore. So, what will the key focus of the Union Budget be in the travel & hospitality industry?

Apart from demanding infrastructure status for the hotel industry, the hospitality and travel sector has asked for tax exemption on LTA, reduction in income tax levels, removal of TDS on automated bookings and reducing the number of licences required to establish a hotel. It has also sought rationalisation of GST and a central window clearance for hotel projects.

Highlighting the suggestions submitted to the Government, Charulata Sukhija, Deputy Secretary General of Hotel Association of India (HAI) shared that the focus is on the need for rationalisation of tax rates, reducing compliances and providing tax certainty. She emphasised that while GST issues are handled separately, the Finance Ministry has been supportive of the industry's GST-related suggestions. “For the Union Budget 2024-25, as is the practice, suggestions were invited for changes in the duty structure, rates and broadening of tax base on both direct and indirect taxes, rationalisation of the rates of tax, reducing compliances, for providing tax certainty and reducing litigations. HAI presented its recommendations for the organised hotel sector under the heads of direct taxes, policy including foreign trade policy, indirect taxes, customs and excise. Though GST related issues are not examined, the ministry has been very supportive in hearing the Industry’s GST related suggestions and conveying them to the concerned authority.”

Pradeep Shetty, President of HRAWI, urged the government to declare tourism and hospitality as a priority sector and advocated for the abolition of the 18 per cent GST category for hotels with room rates above Rs 7,500, proposing a merger with the 12 per cent GST category instead. “We believe that tourism and hospitality should be declared a priority sector. We urge the abolition of the 18 per cent GST category for hotels with room rates above Rs 7,500, merging it with the 12 per cent GST category to boost both domestic and inbound tourism. Additionally, accessible credit at affordable rates is vital for this capital-intensive industry.”

Meanwhile, Kabir Suri, President of National Restaurants Association of India, emphasised on the importance of allowing input tax credits on expenses and proposed a dual GST policy to boost the industry. He also suggested the establishment of a dedicated ministry or department for the restaurant industry. "The sector contributes 1.4 per cent to GST collection and is today the second largest employer in the country. Our industry currently does not receive input tax credit on expenses, and we are hopeful for a change in this budget to allow for input tax credits. Additionally, we propose a dual GST policy of a 5 per cent GST rate and a 12 per cent GST rate with input tax credit. This approach would enable us to offset current expenses, increase capital expenditure, open more restaurants, and ultimately generate more employment and revenue for the Government."

Suhail Kannampilly, Managing Director of The Fern Hotels & Resorts, stressed on the importance of strategic initiatives at the central level and the need for the hospitality sector to receive industry status. He also called for the Government to publish a National Tourism Policy and re-evaluate the GST structure. “Unfortunately, the attention at the central level isn’t ever in focus as tourism is primarily a state subject and falls through the cracks. It is another thing that the industry contributes close to 10 per cent of the GDP of the country, along with being one of the largest job creators. The best the hospitality sector can hope for is strategic initiatives towards infrastructure, manufacturing and fostering a positive business environment that will act as a catalyst to growth.”

Stressing on the importance of infrastructural focus and private participation in setting up new airports, as well as the need for rapid expansion in rail, road, and waterways, Madhavan Menon, Executive Chairman, Thomas Cook (India) Limited, said, “Our expectations from the Union Budget include key pivots to transform India into a destination of choice. Infrastructural Focus as a key fundamental for the sector, setting up of new airports via private participation must become a priority – thus creating a viable hub and spoke model; also rapid expansion in rail, road and waterways (sea and river cruises). Additionally, infrastructure development for high growth areas like religious circuits and underleveraged hidden gems (Lakshadweep).”

Calling for industry status for the hospitality sector and an infrastructure boost to promote sustainable tourism practices, Vineet Verma, Director, Brigade Hospitality, said, “The hospitality sector has been on the growth path over the last few quarters and in order to fast track this growth, we expect the government to consider granting industry status to the hospitality sector. Nationwide industry status to tourism could lead to better access to finance, regularised policies, and a more strategic approach to tourism development. The government should also consider an infrastructure boost. Investments in infrastructure development, including regional airports, improved connectivity, and enhanced tourism infrastructure, are crucial to boost tourism.”

Gaurav Malhotra, Managing Director of hansgrohe India, expressed optimism about positive measures to bolster the luxury real estate sector and enhance overall market dynamics. “For the Union budget, we are optimistic about the positive measures that will bolster the luxury real estate sector and enhance the overall market dynamics. This aligns with the growing aspirations towards a luxury lifestyle, where consumers seek high-quality, sophisticated home interior solutions. We urge the Government to put a rationalisation on GST and reduce home loan interest to stimulate demand and growth for the luxury real estate sector.”

Pointing out the importance of rationalising the duty structure of aviation turbine fuel (ATF) and infrastructure development to support regional connectivity, Kinjal Shah, Senior Vice President & Co-Group Head - Corporate Ratings at ICRA Limited, said, “Rationalising the duty structure of aviation turbine fuel (ATF) is expected to materially benefit airlines, MRO (Maintenance, Repair and Overhaul) service providers, cargo operators, ground-handling companies, and private airport operators. Additionally, infrastructure development will be critical to support regional connectivity.”

In conclusion, the pre-budget expectations of the tourism and hospitality industry are centred around the need for strategic initiatives, industry status, tax incentives, infrastructural development, and sustainable practices. As the sector eagerly awaits the Union Budget FY 2024-25, it is clear that fulfilling these expectations could significantly boost the industry’s growth and contribution to the country’s economy.