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VAT, licence fee hikes on booze to hit tourism
January, 30th 2009

The heady cocktail of increase in VAT on liquor and the revised licence fee for watering holes that serve it, has shaken the hospitality
sector to an extent that industry watchers fear the move could have grave effects on health of ailing tourism sector.

With the Congress government going all guns blazing to curb the liquor consumption by increasing the VAT on IMFL and beer increased to 20% from 12.5% and hiking the licence fees for the five star hotels, heritage hotels to even restaurants by two to three times, spirits of those who operate in the sector are down. Everyone in the business of hospitality is worried about the repercussions that the policy might have.

The year 2008 has been a bad year for the tourism industry, businesses for hotels went down by half and this move is going to worsen things further. Hoteliers opine that the timing of the move by the government is wrong and with players having their backs against the walls, this will further add to the misery.

It will have impact not only the beverage rates but also on jobs. "With footfall predictions at an all-time low and the licence fees for Class A heritage hotels going up by over 50%, how will we be able to sustain the workforce that we currently are operating with? It will force us to cut down on manpower as we can't shut shops," says the owner of a Heritage hotel in the Aravali region., "Across the globe, governments are cutting costs to increase demand and we are going against the tide. Those in power should understand that the ethos of 60's can't be followed now," he added.

Not just individual operators, even big chains are worried and have asked their finance managers to review the situation. Sujan Ganguly, food and beverage manager of a three star business hotel makes a point, "The double whammy is a bit too much. With these rates a Rs 200 drink will cost a little over Rs 400 and with corporates shrinking their budgets I can't expect my clients to splurge. One can understand increase in VAT, but the licence fee hike is a heavy extra burden. Instead of devising policies that lure them, the government is doing exactly opposite."

And taking the corporate woes ahead, the general manager of a leading luxury hotel chain on condition of anonymity says, "The fee for five star hotels are proposed to be increased three times and we have asked our finance managers to figure out how much this move will affect us. The indicators so far haven't been great."

Sources in the excise department say the move is aimed at making sure that obtaining a licence becomes out of reach of many and that owners do not renew their licence. Their move seems to work, as Ajay Singh, owner of restobar The Rock says, "Paying Rs 5 lakh to obtain a lager beer licence is a bit too much. I am seriously considering against renewing my licence for the next year."

If this be the case than in order to control drinking habits of some, the government might kill the goose (read tourism) that has been laying golden eggs for many in the state.

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