VAT Introduction Module Worries Karnataka Hoteliers

Vyas Sivanand - Bangalore

Budget hoteliers in Karnataka are keeping their fingers crossed further to the government’s decision to introduce Value Added Tax (VAT). According to Karnataka Pradesh Hotels and Restaurants Association (KPHRA) president K L Ramanatha Bhat, as per VAT rules of Karnataka, hoteliers and caterers other than the star category hotels have to pay a tax of four per cent if their turnover is between Rs 2 lakh to Rs 1 crore.

There are just four rates of taxes under VAT - the zero rate, one per cent, four per cent and a general rate of 12.5 per cent. These rates will be uniform in all the states across the country. The same set of goods will be charged at same rates in all states. Most of the essential commodities are exempt from VAT, or fall in the four per cent category.

VAT does not cover small businesses with a turnover below a certain limit, which is decided by each state. Medium size businesses, again decided by the state, can opt for VAT or a composition system of tax on turnover. “The state of Karnataka comes under composition basis and we have requested the authorities to provide exemption from Rs 2 lakh to Rs 30 lakh and a four per cent tax above Rs 30 lakh under the VAT system, if it is introduced,” said Bhat.

Each state seems to have appealed to respective authorities with regard to their concerns relating to the introduction of VAT. In Andhra Pradesh and Tamil Nadu, the traders have to pay one per cent tax on income between Rs 5 lakh to Rs 50 lakh while above that, one has to pay 12.5 per cent tax. According to Bhat, hoteliers in Karnataka will not be treated like Andhra Pradesh and Tamil Nadu because of the composition. “Each state has its own structure. In Tamil Nadu, for up to Rs 10 lakh there is an exemption after which there is composition which goes in slabs,” said Bhat.

The budget hoteliers thus have two concerns - whether the VAT introduction will be rational across all states and secondly, if introduced, will the state authorities take heed to their requests of tax exemption up to a certain level.

Another concern, according to Bhat is the luxury tax, which until last year was eight per cent on room accommodation ranging from Rs 400 to Rs 1000, which is has now come to four per cent on room rate ranging between Rs 150 to Rs 400. “In Andhra Pradesh, hoteliers do not have pay tax on rooms costing up to Rs 600. We have requested for the same arrangement. Other than that, the hotels come under the Shops and Establishments Act further to which we are deprived of benefits derived through electricity and water charges. I feel, if tourism can be given industry status, then hotels, which are an integral part should also be able to enjoy the industrial status,” said Bhat.