Budget 2023 – Expectation from Hospitality Sector (Mr. SP Jain, CMD, Pride Hotels Ltd.)

Mr. SP Jain, Chairman and Managing Director, Pride Hotels Limited has shared his expectations from the Union Budget 2023 for the Hospitality Sector.

1. Extend Timeline for Export Obligation under EPCG Scheme:-

The EPCG scheme allows the import of capital goods including spares at zero duty subject to an export obligation of six times of duty saved on capital goods imported under the scheme, to be fulfilled in six years. Foreign Exchange earnings of the hotel industry have been impacted due to the unprecedented pandemic and restrictions on travel by many countries. This is leading to non-fulfillment of export obligations for pre-covid capital goods imports and consequent penalties on the hospitality industry. In view of the volatile economic environment created due to the Covid Pandemic, the timeline for meeting export obligations should be extended by at least 6 (Six) years for all the EPCG licenses which have an EO period falling between February 2020 onwards.

2. Continuation of EPCG Scheme, service export benefits and grant export status to the hospitality industry:-

The EPCG Scheme allows the import of capital goods for pre-production, production, and post-production at zero customs duty and subject to fulfillment of specific export obligations equivalent to 6 times of duties and taxes saved on capital goods to be fulfilled in 6 years from the date of issue of authorization. This scheme has helped the hospitality sector in India immensely to emerge as a strong player in the global tourism market, by procuring equipment as per international standards and quality. However, the capability of the domestic market to cater to the specific requirements of the hospitality sector is in its nascent stage in comparison to the requirements of the hospitality sector, where the clientele is largely from the global market which is highly competitive. Therefore, it is imperative to continue the EPCG Scheme to enable the hospitality sector to remain competitive in a global market scenario, for some more years.

Granting Export Status to the hospitality Industry with tax incentives and benefits would enable the sector to be more competitive and help the sector to jumpstart its growth to the next orbit.

3. Waiver of secondary condition with regard to average Foreign Exchange

Earnings under the EPCG scheme retrospectively from FY 2007-08 onwards From 2004-2007, the Hospitality industry enjoyed its golden years in terms of revenue performance while earning substantial foreign exchange but ever since then its revival to that past glory looks very remote. It was during this time that the service industry was exempted from maintaining Annual Average Performance conditions vide Para 5.7.6 of Chapter 5 of Exim Policy 2002-07. However, in the year 2007-08, DGFT in the new Exim Policy introduced an additional condition which not only meant that over and above the primary condition, the industry will have to earn 6-8 times the FEE within the respective block period and also saddled with a secondary condition of maintaining a 3 years average past performance continuously over & above the specific EO and the average has to be maintained for the entire block of 8/6 years till the redemption of license.

In this regard, our two requests are given below: –

a) Grant Relaxation in average export obligation by adjusting the preceding 3 years’ annual average performance for all years commencing from the financial year 2008/09.

b) Allow offsetting any shortfall in the average EO in any year by using the excess export done above export obligation for the fulfillment of an EPCG license.

3. Uniform GST @ 12 % on all Hotels

G.S.T. rates for hospitality in India are one of the highest in the world. This makes both domestic and inbound tourism in India very expensive. India is facing tough competition from neighboring destinations especially due to the higher rate of GST in India and other factors which make the total tourism package expensive to India.

The system of GST shifting to different slabs in the same hotel on different dates – under/over 7500 room rate – creates compliance issues. It also spills over to F & B. Therefore, we suggest introducing one flat GST slab @ 12 % at all times to all hotels in the country.

4. Treat the payments made by foreigners in rupees in hotels as foreign exchange earned for the purpose of EPCG scheme

Foreigners coming to India and staying and spending in hotels should be deemed as foreign exchange earned by hotels for the purpose of the EPCG Scheme. It should be treated at par with merchandise exports of hotels & resorts to promote exports of hospitality services. To enable investments into developing more global markets, it is requested to declare foreign exchange & deemed foreign exchange earnings from hotels & tourism as export earnings.

Additionally, it is roughly estimated that each foreign tourist moves across Indian states, stay at hotels & resorts, and go through other experiences, and spends their foreign currency or their converted foreign exchange. All such services of hotels & resorts which accept payment from such foreign tourists should be deemed as exports too.