Insight

Bubbling under: Tamil Nadu

The buoyancy of 2005 in hospitality reflects in the statistics that the state of Tamil Nadu has recorded over the past few months. But issues of taxes, liquor licenses and lack of concessions still threaten to bog down the industry. Preeti Kannan analyses

The year 2005 saw hotels and restaurants across the country clock one of the highest ARRs and average occupancies it has seen. And the state of Tamil Nadu was not far behind. Expansions, takeovers, entries and exits of international hotel brands in the state have been the key features of last year. And why not? The state government is doing its bit in promoting the state as a tourist destination and cities like Chennai are fast becoming a sought after MICE destination, and hoteliers are eager to tap the potential this throws open.

Several hotels managed to make their mark in the industry - some with their entrances and some with their exits. Ceebros Group, the real estate development company, made its presence with its 105-room business ecotel, the Raintree in July 2005, while the Shangri La group entered the market with its brand, the Traders Hotels, in Chennai. But it made a hasty exit within six months after a mutual decision between the promoters and the group to part ways. The promoters then tied up with Accord Metropolitan Hospitality Ltd, Singapore, positioning it as a luxury business hotel.

This was not all. Marriott International launched its first mid-market hotel brand, Courtyard, in Chennai late last year. Similarly, Andhra Pradesh-based Green Park Hotels also started operations in March 2005 in Chennai. The GRT Hotels & Resorts launched its three-star brand, GRT Regency, in Madurai and Kancheepuram and the Residency Group opened its fifth property at Karur in Coimbatore. As part of its domestic expansion strategy, Taj Hotels Resorts & Palaces also announced its plans to develop a new business hotel in Coimbatore and entered into a long-term license agreement with the owners of Hotel Surya International.

Calculations say that this will not be all. Market speculations show that Chennai alone might experience a dearth of about 4,000 rooms in the next few years. That this might be true is resonant in the fact that giants like the Leela Group, Hilton International and JW Marriott have acquired land in Chennai.

Another interesting phenomenon in Chennai and its outskirts is the growing popularity of service apartments. Star City, which set the trend in the city with its classy, comfortable and affordable service apartments three years ago, has opened two more branches in the city last year.

The flip side

Despite the fact that these big chains have plans to make a foray into Tamil Nadu, there are still some sore points in the industry. Beneath the veneer of buoyancy, there is a lot of disgruntlement and restlessness among hoteliers because of issues like liquor licenses, FSI and the eluding industry status to hospitality.

But the most immediate concern of the industry is the bar timing. As per local laws of the state, they have to shut shop by 11 in the night. The state police attributes the need for an early curfew to the increasing road accidents resulting from drunken driving. Hoteliers believe that with many international flights coming into the city at odd hours, a slight relaxation in the timing would help them serve transit travellers - both Indian and foreign. The FHRAI has in fact requested the government to extend the bar timings since it fears that these restrictions might induce people to consume more alcohol in less time, which could pose even more danger.

The other alternative, according to Prabhat Verma, GM of Taj Coromandel Chennai, could be a separate lounge for the in-house guests. "If the partygoers in the city cannot drink, we need a separate lounge area where we can serve guests staying at our hotel," he points out.

Taxes and licenses

While hotels are faced with the curfew issue, restaurants in the city are suffering from the lack of liquor license. Regi Mathew, CEO and chef at Benjarong, a Thai restaurant in Chennai, explains, "It would be ideal to have permission to serve beer in restaurants because it would help us serve our customers better."

Serving liquor within the hotel premise is a hugely debated issue because of the absence of proper guidelines defining the areas these hotels are allowed to serve alcohol in. The Taj Group of Hotels, for instance, would prefer clear directives on the excise rules governing within the premise of the hotel. Serving liquor in places like the swimming pool, banquet area and even rooms are grey areas as there is no clear-cut rule. There are demands asking permission to allow alcohol in the entire hotel premise, but this seems unlikely as the government is wary about lifting these restrictions, because hotel guests also include women and children.

Taxes are another sore point among hoteliers, especially the separate tax structures for banquets. Banquets fall under mandap operators and are therefore taxed separately. Besides, there was a recent increase in the service tax plus the sales tax for banquets from approximately 16 per cent to about 22 per cent making matters worse for hoteliers.

An equally thorny issue is the sales taxation on imported liquor, which figures anywhere between 75 and 90 per cent - an exorbitant amount. The ironical issue is that while the government of India allows star hotels that earn foreign exchange, duty free import on liquor, the state government charges a hefty sales tax.

In 2001, the government had brought down the luxury tax from 25 per cent to 12.5 per cent, which was a source of huge relief for the industry. M P Purushothaman, vice president, FHRAI and president, SIHRA, avers, "This 50 per cent reduction was a reason to celebrate. But this rate is charged on the rack rate, which is difficult since the rates keep fluctuating. We have therefore requested the government to bring it down and charge it on the actuals." As a result, the government is considering slashing the luxury tax further to 10 per cent and charge it on the actuals. Moreover, guests are charged on the published tariff and if they refuse to pay, the tax passes on to the hotel.

Demand for more FSI

As a result of growing demand for hotel rooms and increased land costs, hotels are demanding more FSI. Natarajan asserts that with new industries investing in the state, there is a need for more rooms and a 50 per cent increase in FSI, which the IT industry enjoys, could be an answer to it. "Hotels need to be in the centre of the city but land prices are so high and the present FSI gives no economic benefit," he explains.

With hotels looking at expanding to secondary cities of the state, Natarajan points out the need for concessions and loans to help projects. "The government could probably give us land on a long lease and waive the luxury tax. The software industry is exempted from tax whereas hotels pay a lot despite the fact that we help create local employment," he maintains.

While there are issues that need to be resolved and the government has promised to consider these demands, hoteliers concur that the state has done considerably well in promoting tourism, which in turn has helped the hospitality industry. For starters, the state government could look into the secondary aspects that directly affect the industry rather than clamping it down with additional taxes and curfews. It could probably take to task inebriated drivers and bringing in stringent enforcements of the law instead of forcing hotels to take the onus.