HRAWI RAISES VOICE AGAINST BMC’S CAPITAL VALUE SYSTEM
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Hotel and Restaurant Association of Western India (HRAWI) has announced that it will start an all out protest against the new capital value system for taxation adopted by Brihanmumbai Municipal Corporation (BMC) with retrospective effect from 2010. This announcement comes in the wake of Public Interest Litigations filed separately by HRAWI, East India Hotels, Taj Group of Hotels, eminent architect Jashwant Mehta, and other individuals, associations, hotels and institutions.
Earlier, BMC had replaced property tax computation from ratable value method – based on rent – to capital value system – based on the property’s market price. The new system resulted in property tax of both residential and commercial properties jumping up, creating huge disparity between new properties and old, widening the difference between commercial and residential properties, and the introducing of periodic revision to property tax as against fixed taxes; among other changes.
Some of the other fallouts of the new valuations are equally devastating. For one, it would spell the death of service apartments. By clubbing service apartments with 4 star hotels, the former will end up paying five to seven times higher taxes as compared to furnished apartments given on lease in the same location. The difference between the two is only an addition of services such as house-keeping, maintenance, security, and the like. This will be in addition to 15 times higher water charges.
Star category hotels, especially those catering to the budget segment are also expected to take a big hit. Against 0.652 per cent property tax paid by unstarred hotels, 1 star to 4 star category hotels will have to pay 1.303 per cent taxes. “If we add the user category factor of 1.00 for unstarred hotels and 1.10 for the star category, the difference in taxes between star hotels and unstarred ones would be 220 per cent. This will make operating as a star hotel, especially in the budget segment, totally unviable. Its consequence on tourism would be disastrous. The quality of services provided could see a big hit and we may see a drop in mid to high yield tourists. The difference between unstarred and star category budget hotels is not in capital value but in quality of service,” said Kamlesh Barot, immediate past President, HRAWI.
“The new capital value system provides for a shelter only to old properties. So the cap of 300 per cent on existing property taxes as payable on or before 1 April 2010 will not benefit hotels constructed after 2010. They will see a rise in taxes even in slump years. If, God forbid, we are hit by a massive economic downturn, we could, theoretically, be in a situation where the property tax is higher than gross revenues,” added Barot.
Another anomaly in the value system based taxation is that new hotels built between 2010 and 2014 will have a liability of Rs. 35.43 crores compared to Rs. 27 crores for a hotel of the same value constructed before 2010. “And, if a similar hotel in the same zone were constructed in 2014, the taxes would be 64 per cent higher due to increase in Ready Reckoner rate between 2010 and 2013. This would mean that the tax provision in this case would be a staggering Rs. 58.15 crores. The anomalies are disturbing and will make it very difficult for new hotels to come up. In 2015, the situation gets worse. The taxes for all properties will be as per capital value as on April 1, 2015 subject to maximum of 40 per cent cap over the taxes as payable on April 01, 2010. New properties will be worse off,” added Mehta.
“Under such conditions it would be completely unviable for existing hotels to survive or new hotels to come up. Without its infrastructure, Mumbai is no different from any other B town in India. We have already filed a Public Interest Litigation in the Bombay High Court. In addition, we will embark on an all out protest comprising of advocacy at all levels, representations with concerned authorities and any other measure as may be warranted,” concluded Gurbaxish Singh Kohli, Vice-President, HRAWI.