To,

Shri Shivraj Singhji Chauhan

Hon’ble Chief Minister
Government of Madhya Pradesh,
Vallabh Bhavan, 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 LICENSE POLICY :

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 Licence Fees :

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 :

CATEGORY LICENCE FEES PER ANNUM

FL-III for Hotels Rs.10.60 Lacs. + 25% Deposit +
Minimum Guarantee over and above
the total liquor sale of previous year.
FL-II for Restaurants Rs.6.40 Lacs + 25% Deposit +
Minimum Guarantee over and above
the total liquor sale of previous year.

M. P. Tourism Hotels Rs. 3.50 Lacs.

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 :

For Cities with a population of Rs.5.00 Lacs

over 10 Lakh
For Cities with a population Rs.3.00 Lacs.
between
5 lakh and 10 lakh
For Cities with a population upto 5 Rs.2.00 Lac.
lakh.
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 TAX ON GUEST 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