The government's decision to increase service tax to 12% will make hotel tariffs more expensive, and will have an impact on overall occupancy and business for hotel companies, leading hoteliers said today.

"The overall outgo for consumers will go up and there will be an impact on the average room rates and occupancies to some extent," Accor Vice President-Development Lokesh Sabharwal told PTI at the Hi-Aim 2012, an event for the hospitality sector.

"We were expecting rationalisation of taxes for hospitality sector, but instead the government has increased service tax which will have a direct impact on our businesses," Carlson Hotels President South-Asia KB Kachru said.

"By doing so, we are making India even more expensive, compared to other destinations in the Asia such as Bangkok and Singapore," he added.

When asked if hotel companies were in a position to absorb the impact of the tax hike, Starwood Hotels and Resorts Regional Vice-President (South Asia) Dilip Puri said: "We will have to study the impact of the tax rate hike on all the services and see how much of it can be observed."

But since input costs are rising and margins are thin, the company will have to pass on the burden on to the consumers, he said.

Land availability and licensing processes still remain a challenge in India and the government is not doing enough to address these issues, he added.