Bangalore hotels, AC eateries to charge more

Establishments will pass service tax burden on to consumer

Finance Minister Pranab Mukherjee announced on Monday that the government’s service tax of 10 per cent would be extended to hotel rooms charging tariff of Rs 1,000 and above and on air-conditioned restaurants that serve alcohol.

The hospitality sector, while losing its exemptions from the tax, would still receive discounts of 50 per cent and 70 per cent, respectively.

“This will mean an effective burden of only five per cent of the amount charged (for hotels),” Mukherjee said. The tax will add 3 per cent to the bill at air-conditioned restaurants.

Mukherjee said he was bringing more services into the tax net to better align the service tax with its planned successor, the Goods and Services Tax (GST). The aim was to impact only those who could afford to pay, he said, as the GST unified many taxes and duties imposed by both the state and Central governments.
Caught unawares

D N Reddy, finance officer of the Atria Hotel Group, said the tax had caught the hotel industry unawares.

“It’s actually a surprise. We never expected this,” he said.

The service tax currently applied only to banquet hall rentals, prices of which swelled by 25 per cent once all taxes were included, Reddy said.

“People are already saying, why is it such a big figure? If the levies are extended to their accommodations and the restaurants, it will definitely be a problem for guests.”

The industry will pass the tax burden to customers, Reddy said.

“It will be a big burden for them,” he conceded.

Bangalore Hotels’ Association manager Ramesh Bhandare said the members of the association would meet on Wednesday to discuss the issue.

“They will take action after the meeting,” Bhandare said.

The room rents already carry State luxury tax. According to the website of the Karnataka Commercial Taxes Department, a four per cent luxury tax is imposed on rooms costing between Rs 500 and 1,000 per night, eight per cent on those with tariff from Rs 1001 to 2000, and 12 per cent on rooms that cost Rs 2,001 or more.

Service tax

* 3% on food and beverages served in  A/C restaurants with alcohol licence
* 5% on accommodation at hotels, campsites and similar establishments