The Commonwealth Games Organizing Committee has asked the Delhi government to waive the luxury tax for six five-star hotels hosting foreign delegates during the mega-event in October next year.
They have also requested that Value Added Tax (VAT) be waived for the purchases they make for the Commonwealth Games, including items purchased for the Commonwealth Village.
Finance Minister A K Walia confirmed that proposal has come to the government. We are studying the proposal and no decision has been taken, Walia said.
The Finance department has not yet made an estimate of the amount the government will stand to lose in case the move is sanctioned. A decision on the issue will be taken by the Delhi Cabinet.
According to a rough estimate, the government will lose nearly Rs 120 crore in case an exemption on the luxury tax is granted; another Rs 30 crore will be lost in case of the VAT exemption, a senior excise official said.
The question is how to decide whether a certain item is meant for the Commonwealth Game. It is a tricky situation, a senior government official said.
The request comes at a time when the government revenue collection has hit an all-time low. Earlier this year, the Delhi government had reduced the luxury tax levied from 12 to 10 per cent in order to provide a much-needed stimulus to the tourism industry ahead of the Games.
Despite the move, luxury tax collection has already dipped by more than 25 per cent, according to officials. Last year, the government earned Rs 330 crore from luxury tax.
Another point of consideration is that this is the only opportunity for the government to recover part of the amount it spent on infrastructure for the Games, a senior official added.
According to the Tourism ministrys estimate, nearly, 40,000 hotel rooms are required during the event. At present, 13 five-star hotels have confirmed 2,270 rooms, while six four-star hotels have confirmed another 485 rooms.
The government has also managed to rope in three-star hotels, who have confirmed the provision of 2,000 rooms. Negotiations are on with the other hotels for additional rooms. The tariff has been fixed at US$ 250 to US$ 300 for five-star rooms and between US$ 200 to US$ 225 for four-star rooms.