Hoteliers hoodwinking government and consumers on taxes

Hoteliers are misguiding governments and blatantly cheating consumers. This has been proved beyond doubt by the statement made by one of the prominent hotelier of New Delhi at a tourism industry interaction organized by the Federation of Indian Chambers of Commerce and Industry (FICCI) with Delhi Tourism Minister Kapil Misra.

While many participants were critical of the increase in taxes by the Delhi government by five per cent, they gave elusive replies on the additional service charge of 10 per cent levied by hotels and restaurants arbitrarily which burns a larger hole in the pockets of the consumers.

While the Delhi Minister was “open to suggestions from the industry,” he advised the participants to come forth with concrete data on loss of revenue due to increase of 5 per cent “after doing their homework”. Minister Kapil Mishra was not ready to buy the explanation given by a sizeable number of hoteliers that business had shifted to Gurgaon as Delhi hotels have become more expensive than the neighbouring States.

When one of the participants raised the issue of arbitrary addition of 10 per cent as service charge by many big players in the industry and waved a food bill in which he had to pay Rs.700 as tax on a consumption of Rs.1600, the proponents of service charge tried to sideline the issue and confuse the Delhi Minister by raising the issue of taxes being levied by the government on published tariff of hotels while they “sold their rooms at much discounted prices.”

Chairperson of Lalit Suri Hospitality group, Ms. Jyotsna Suri said, “Tax is levied on published tariff of hotels burdening the consumer while the actual selling tariff is much lower as various discounts are given to consumers depending on their category.”

When confronted with the question of the arbitrary service charge levied by hotels overburdening the DSC_0779consumer, she said, “This is levied all over the world. You must go out and see for yourself.”
Ms. Suri went to the extent of misleading the gathering by saying that the “10 % service charge on hotel bills was optional.”

Asked where can one experience this option, she challenged that all her hotels do not charge arbitrarily. “It is optional in my hotels,” she added.

Interestingly Ms. Suri’s hotel chain has been in controversies for several reasons. For instance the Laxmi Vilas Palace of Udaipur which was “sold” off to Bharat Hotels Limited during the disinvestment drive of the NDA government in 2002. In this case while the Central Bureau of Investigation (CBI) had said in its preliminary enquiry report in 2014 that the property was worth Rs.150 crore; it had been sold for a song at just Rs.7.5 crore.

The case of the 55-room heritage hotel with a built up area of 7135 square metres on 29 acres of prime land in Udaipur seems to have been brushed under the carpet now.

But Ms. Suri can also not deny that in 2013 the Delhi Pollution Control Committee (DPCC) had served a notice of closure on the flagship of her group, the Lalit in Delhi for many environmental violations.
Can her statements be taken in earnest at this juncture?

However, in practice none of the hotels and restaurants would let a consumer go without the arbitrary 10 %. Neither has any of them put up a notice on the menu or tariff sheet that the service charge is ‘optional’. Collecting an extra 10% by ambiguous means is nothing less than cheating the consumer who is largely unaware of the difference in service ‘charge’ and ‘tax’.

Who has hiked costs – hotels or the government ?

It must be noted that the Union Finance Ministry had recently come out with a clarification saying the service charge should not be misconstrued by consumers as a government levy.

Obviously the big players in the hotel industry have set their own rules while they shed crocodile tears for consumers saying the burden is borne by the latter. Big players have been playing a game of misleading the government by saying that they want lower taxes in Delhi to prevent the tourism industry from shifting its centre to Guragon, which, in recent years, has witnessed the opening up of several international and national brands. Big players who have been selling their hotels at exorbitant tariffs are now feeling the pinch as smaller hotels and hotels in the neighbouring States are biting into their share.

Asked why hotels have exorbitant tariffs, the lobby of big players has hid behind the excuse of expensive realty rates in the country. “We pay more for land so the tariffs have to be higher,” is the lame excuse.

The proponents of high tariffs have no convincing reply on why hotels in many neighbouring countries or even in Europe have much higher standards and still cheaper in tariff.

The Delhi Minister assured the industry that the government was willing to consider the issue of taxes levied on published tariff rather than on actual selling price, if they could ensure that the transactions were transparent hinting at the ambiguity in billing where wholesale consumers get billed for half of the actual billing to avoid taxes on the entire amount and save a dime. Such instances are a daily occurrence where hotels and consumers are equally a party to tax evasion.
The strategy of shedding crocodile tears for consumers will not help the industry for long.

Moreover, hotels and restaurateurs are yet to come out with transparent menus which simply get away by a line at the bottom “State taxes as applicable” — yet another way of misleading the consumer on the end price of their products.

Why can’t they have an all inclusive net price on their menus?