Hon Ble Chief Minister

To,

ShriShivrajSinghji Chauhan

Hon’ble Chief Minister

Government of Madhya Pradesh,

VallabhBhavan, Mantralaya,

Bhopal - 462 001.

Respected Sir,

Sub: Tourism Sector Pre-Budget Memorandum for Financial
Year 2014- 15.

Greetings in the 63rd year of the Hotel & Restaurant Association (Western India). !!

At the outset, on behalf of the Association, I wish to congratulate you for securing the third successive term as the Hon’ble Chief Minister of Madhya Pradesh.

As your newly elected Government has allocated all the Ministry portfolios, I also wish to congratulate you for keeping the prestigious Tourism Ministry portfolio with your good self. We are confident under your dynamic leadership, all issues plaguing the growth of Tourism Sector will be resolved.

As you may be aware, that for the past several years, the Tourism Industry in Madhya Pradesh, particularly the Hotel & Restaurant sector, has been burdened with ‘Investor Unfriendly Tax Laws’, which have become painfully irritant and hindrance to growth.

The Association has been relentlessly pursuing these issues, detailed herein below, year after year, but no relief seems to be in sight.

Perspective Investors, from the Hotel & Restaurant sector, who were due to invest in your prestigious State have already started to shy away from investing, due to these presently unfriendly laws, governing the Tourism Sector.

Several efforts undertaken by the Association, to seek an appointment with your good self, for the past 2 years, have been futile.

May we request your good offices, with folded hands, to please adhere to the request of the Association, on the following 4 issues, as detailed herein below, while presenting your forthcoming State Budget :

1)Liquor License Policy

2)Industry Status

3)Tourism Policy

4)Luxury Tax on Guest Services.

1)LIQUOR LICENSEPOLICY :

a)Abolition of Minimum Guarantee on Sale of Liquor

The Govt. of Madhya Pradesh has burdened the Tourism sector, each year, with heavy license fees, taxes, and imposed a “Minimum Guarantee on Liquor Purchase” which has lead to a social problem as the State Govt. is encouraging mass scale Liquor consumption due to this Minimum Guarantee Policy. In fact Hotels & Restaurants in Madhya Pradesh are compelled to pay penalties for not adhering to the Minimum Guarantee Policy.

The imposition of Minimum Guarantee over and above the total liquor sale of previous year has been a big deterrent for growth such that it has increased the input costs of Liquor procurement resulting in higher selling price which has caused a decline in customers and sales across the State.

The State has been increasing the Minimum Guarantee on Liquor Purchase by each year but however the seating capacity in a Bar of Hotel / Restaurant is constant and limited and does not increase each year.

The Association request that this Minimum Guarantee policy be withdrawn with immediate effect as such rules exist in no state of India.

b)Liquor License Fee Renewal

Existing Hotels and Restaurants are compelled to send architectural drawings and photographs for Liquor License renewal each year which is a cumbersome paperwork process. Such administrative burden needs to be removed if the State is looking for investment growth in the Hotel / Restaurant sector. The Association requests that the process of License Renewal must now be allowed with an option for 3 / 5 years renewal which will help to reduce the administrative burden on the Hotel / Restaurant. The process of Liquor Licence Fee renewal should be technology friendly i.e. Online, instead of the cumbersome paperwork process which is time consuming.

c)Liquor License for New Establishments

A newly opened Hotel or Restaurant has to wait for a minimum period of 10 to 12 months for operation of a Bar due to Govt. administrative delay in providing the Liquor License. As a result it leads to revenue loss for the owner / investor as well as for the State Govt. which loses VAT revenue due to the delay in obtaining the Liquor License. The

Association suggests that Madhya Pradesh must follow the example of States’ such as Maharashtra and Goa where an owner/investor can operate his Bar from the very first day of opening of his Hotel/ Restaurant due to quick and speedy availability of Liquor License. Such a move will be a win-win situation for the Madhya Pradesh Govt. as well as the Hotel / Restaurant investor.

d)Liquor License outside Municipal Limits

A newly established Restaurant outside Municipal Limits is not permitted FL – II Liquor License and is instead forced to apply for a “Club License” wherein the owner/investor is burdened to make investments in Swimming Pool, Card Room, Gymnasium etc. to be valid for a Club License. Such draconian rules need to be done away with, which compels an investor to make such unnecessary investments for a Club license instead of the regular FL - II Liquor License as it can seriously hamper the growth of Restaurant sector across Madhya Pradesh.

e) Liquor Procurement from a Single Liquor Vendor

Earlier a Hotel / Restaurant operator could procure liquor from any of the 3 designated Liquor shops but however as per the new rules, the liquor procurement must be done from a single designated liquor

vendor only which is unjust, unfair and inconvenient. A Hotel / Restaurant operator is forced to procure limited choice of brands as available with the single designated liquor vendor and that too as per

prices quoted by the vendor leaving no room for a fair price bargain. This anomaly must be removed if the state is looking for growth of the Hotel / Restaurant sector.

f)Bar Timings :

The Liquor Policy announced on 1st January 2014 has reduced the timings for operation of a Bar i.e. the closure timings have been reduced from 11 :30 pm to 11:00 pm. While on one hand the State Govt. wants to push for more liquor sales through its Minimum Guarantee Policy and on the other hand the Govt. has reduced the timings of bar operation, thereby affecting sales of a Bar in a Hotel / Restaurant. The Association requests that the Bar closure timings may pleased be restored back to 11:30 pm, as was the case earlier.

g) Liquor LicenceFees :

The present fees for Permit Room / Bar has a crippling effect on Hotel / Restaurants who are complying with the law. The present State Excise License Fees structure is as under :

The Madhya Pradesh State Govt. has been consistently increasing the Liquor License Fees each year making the Hotel / Restaurant business unviable.

Our Proposal :

It is requested that the Liquor Excise License fees be reduced by 50% or the fee to be levied on the basis of population at the place of business as given below :

It is imperative to note that the burden of the unorganised sector is currently being shared by the organised sector. Thus the above suggested Liquor License fee model will bring the unorganized sector also in the purview of the license structure.

As you know, Hotel and Restaurant is one sector that provides employment opportunity to thousands of people, mainly young men and women and has a multiplier effect in the economy. These employees do not belong to the highly skilled category and support their families through their earnings. It is, therefore, essential in the interest of this employment generation that the request of the Association is considered favourably and sympathetically, as closure of Hotels & Restaurants will lead to job losses.

2) INDUSTRY STATUS :

The Association greatly appreciates the efforts undertaken by the Government of Madhya Pradesh in declaring Tourism as an Industry. The real benefit of Industry status must be granted to all Hotels / Restaurants in the form of reduced rates for electricity, water, property taxes etc. from the current prevailing rates. In the absence of which the very purpose of granting Industry status will be defeated.

3) TOURISM POLICY

The earlier Tourism Policies provided 10 years exemption of Luxury Tax, Entertainment Tax and Sales tax which resulted in large scale investments in the Hotel sector of Madhya Pradesh from the years 1992 to 2010. However the new Tourism Policy does not make a mention of VAT Exemption. May we request you to please restore these exemptions in the new Tourism Policy, if the state is looking for small / medium or big sized investments in the Tourism sector.

4) LUXURY TAXONGUEST SERVICES:

PRESENT STATUS.

Luxury Tax at 10% is currently levied on Hotel Room Tariff and all Guest services such as Telephones, Laundry, Banquet Hall Rentals, Business Centre, Florists etc.

OUR PROPOSAL

We request the State Govt. to levy Luxury Tax on Hotel Room Tariff only, as is the practice across India, and not on all Guest Services such as Telephones, Laundry, Business Centre, Banquet Hall Rentals, Florists etc.

Justification :

Laundry services in a Hotel in Madhya Pradesh are termed as “Luxury” subject to Luxury Tax whereas Laundries’ on street corners of Madhya Pradesh are not subject to such a Tax. Similarly STD / ISD / PCO booths in bylanes of Madhya Pradesh are not subject to Luxury Tax but phone calls made from Hotels in Madhya Pradesh are subject to Luxury Tax.

Availing Laundry services in a Hotel is a hygiene necessity of a guest and cannot be termed as Luxury. Similarly usage of phones is a communication necessity of an individual and cannot be termed as Luxury. Revenues from Telephones in Hotels have already become insignificant for past several years, thanks to wide spread usage of mobile phones by guests.

The Institution of Marriage is meeting of two minds and hearts and is a necessity of every individual and family household but the same is are termed as “Luxury” in Madhya Pradesh and is subject to Luxury Tax, when conducted in a Hotel.

It may not be out of context to state that across India, Luxury Tax is levied on Hotel Room Tariff only, whereas in Madhya Pradesh it is levied not only on Hotel Room Tariff but also on Guest services such as Laundry, Telephones, Banquets, Florists etc.

On behalf of the Association, I am willing to discuss all the above issues in person with you at a day and time convenient to your good self at Bhopal.

With Greetings of the New Year to you and your family, I request you for an appointment with your good self at Bhopal. My cell number is 09821038366.

With warm regards,

Yours Sincerely,

SUNIT KOTHARI

CHAIRMAN - MADHYA PRADESH COMMITTEE

HOTEL & RESTAURANT ASSOCIATION WESTERN INDIA

Cell : 09821038366