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TABLE OF CONTENTS
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With a view to stimulate domestic and international investments in this sector, the
government has permitted 100 percent FDI in the automatic route allowing full FDI into all
construction development projects including construction of hotels and resorts, recreational
facilities, and city and regional level infrastructure. 100 percent FDI is now allowed in all airport
expansion projects subject to the condition that FDI for up gradation of existing airports requires
Foreign Investment Promotion Board (FIPB) approval beyond 74 percent.2
6 Govt. to review FDI in Tourism Sector, News and Features, New Delhi, February 13, (2007),
(www.sarkaritel.com)
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taxation of the gross serviceamount leads to double taxation and increases the burden for the
tourists.
setting up newhotels, motels and holiday resorts. The entry of McDonalds, Pepsicos Kentucky
Fried Chicken,Dominos and Pizza Hut has given an international glitz to the hospitality
sector.The gestation period is usually between three and four years.
Tourists Attraction:
A rapidly growing middle class, the advent of corporate incentive travel and the multinational
companies into India has boosted prospects for tourism. India's easy visa rules, public freedoms
andits many attractions as an ancient civilization makes tourism development easier than in
many othercountries.
5. Hardships in Income Tax Act Relating to Hospitality Industry9
Section 194-1 of the Income Tax Act & Tax refunds
The provisions of Section 194-1 of the Income Tax Act are applicable to the payments made by
the touroperatorsand travel agents to various hotels on behalf of foreign tourists for the services
provided to thetourists by the hotels.Tax is deducted @ 20% with a 1% additional surcharge for
the FY 2002-2003.10 (Tax is deductible ifpayment to payee during the year is expected to be Rs.
1, 20.000 or more) The tourism industry typicallyexperiences cancellations to the tune of 50%,
which is a situation peculiar to the Tourism sector alone.11With tax refunds in India being a long
and tedious process, the cash flow of the service provider suffers andleads to a liquidity
constraint.
Sec 10(5)(B) OF IT Act, 1961:
Hotel industry was getting a concession under section 10(5)(B) of Income Tax Act, under which
incometax on salaries of specified class of technicians was being paid by the employer. Chefs in
the hotel industrywere specified under this category of preferred technicians by notification of
Ministry of Finance. Thissection has been abolished from 2002-03. But still technicians in Spa.
9Article on, A study on Foreign Direct Investment (FDI) in Indian Tourism by Dr. P SrinivasSubbarao.
Available at: http://dspace.iimk.ac.in/bitstream/2259/544/1/, Last Accessed: 15.10.2013
10 Sanford, D.M. and H. Dong (2000) Investment in familiar territory: tourism and new foreign direct
investment, Tourism Economics 6(3): 205-19
11 Toda, H.Y. and P.C.B. Phillips (1993) Vector autoregressions and causality, Econometrica,
61(11):1367-1393
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Moreover, the investments to be made are also capital intensive and the facilities require
periodicrenovation, up-gradation and up-keep much like plant and machinery.12
In due consideration of this, it would be necessary to provide to Hotels depreciation rates that
match thenature of investment and operations. The relevant provisions of section 32 of the IT Act
may be amended.
15 Enders, W. (1995) Applied Econometric Time Series, John Wiley & Sons, Inc, New York
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Other sectors like roads, power, telecommunications, airports, ports etc. have been recognized
asinfrastructure and given higher incentives under the Income Tax Act. These benefits also need
to beextended to tourism, duly recognizing its multiplier effect on the employment generation,
income earningand foreign exchange earning potential of the economy. Such a step would boost
the much-neededexpansion of the accommodation sector.16
Sec 80IA allows a deduction of an amount equal to 100% of the profits and gains derived from
aninfrastructure project for ten consecutive assessment years.
Sec 10(23) G allows the Net Income after taking into account all related expenses of an
InfrastructureFinance Fund/Company to be exempt from tax if it has earned income by way of
financing an enterprisewhich is wholly engaged in the business of developing and/or maintaining
and/or operating anInfrastructure Project as defined in Sec 80 IA of the Income Tax Act, 1961.
16 Engle, R.F., and C.W.J. Granger (1987) Dynamic model specification with equilibrium constraints:
co-integration and error correction, Econometrica 55(3): 251-276.
17 Davidson, R. and J.G. MacKinnon. (1993) Estimation and Inference in Economics. Oxford University
Press.
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6. CONCLUSION
India is losing out on the market share, vis-a-vis competing destinations. As is evident from the
adjacentfigure, from 1990 onwards Indias market share has come down in respect of the major
source countries.18On the other hand, competition is increasing. The number of countries with
over 1 million tourist arrivalshas increased from 15 in 1950 to 70 in 1999, whereas Indias rank
is at 40.
Recommendations:
There was need to rationalize the taxation on the hotel industry and adopt a single luxury tax
across thecountry. For provision of single-window clearances at the local, State and Central
Government levelsto reduce procedural delays.
-
There was need to rationalize the taxation on the hotel industry and adopt a single luxury
tax across the country. For provision of single-window clearances at the local, State and
Central Government levels to reduce procedural delays.
Tax holiday would encourage FDI in this sector and more players to set up hotels, to
bridge theshortage of rooms which according to Government estimates stood at one lakh
rooms.
Section 72 (A) of the Income Tax Act should be amended such that it is made applicable
to theHospitality sector also by using the word undertaking in lieu of industrial
undertaking.
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19http://dipp.gov.in/English/acts_rules/Press_Notes/press4_01.htm
BIBLIOGRAPHY
Books:
Batra G.S., Tourism in the 21st century, (1996) Anmol publications Pvt. Ltd.
Usha C.V. Haley, (2001), Tourism and FDI in Vietnam, Haworth Press
Toda, H.Y. and P.C.B. Phillips (1993) Vector autoregressions and causality, Econometrica,
61(11):1367-1393
Reports:
GOI, (2005) Mid term Appraisal of the Tenth five year Plan (2002-2007)
Planning Commission, New Delhi.
Articles:
Sanford, D.M. and H. Dong (2000) Investment in familiar territory: tourism and new
foreign direct investment, Tourism Economics 6(3): 205-19
Investment opportunities in Tourism Sector, Government of India portal Investment
Commission . Available at: http://www.investmentcommission.in/tourism.htm#v
Manpower recruitment in Hotel industry, A market plus report of Ministry of tourism,
Government of India. Available at: http://tourismindia.com
Govt. to review FDI in Tourism Sector, News and Features, New Delhi,
February 13, (2007), (www.sarkaritel.com)
Akhilesh Sharma, Amar Johri and Ajay Chauhan, FDI: An Instrument of Economic Growth
& Development in Tourism Industry <http://www.ijsrp.org/research-paper-1012/ijsrpp10103.pdf>
Investment opportunities in Tourism Sector, Government of India portal Investment
Commission (http://www.investmentcommission.in/tourism.htm#v)
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Article on, A study on Foreign Direct Investment (FDI) in Indian Tourism by Dr. P
SrinivasSubbarao. Available at: http://dspace.iimk.ac.in/bitstream/2259/544/1/, Last
Accessed: 15.10.2013
Dr. H. A. C. Prasad & R. Sathish Policy for Indias Services Sector
<http://finmin.nic.in/workingpaper/policy%20Paper%20on%20Services%20Sector.pdf>
Websites:
http://www.academia.edu/1165345/Foreign_Direct_Investment_in_Tourism
http://www.edutoursindia.com/100-fdi-in-tourism-industry/
http://dipp.gov.in/English/acts_rules/Press_Notes/press4_01.htm
http://finmin.nic.in/workingpaper/policy%20Paper%20on%20Services%20Sector.pdf
www.fhrai.com.
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