Input Tax Credit Withdrawal Has Brought The Restaurants And The Government At Loggerheads Yet Again

Input Tax Withdrawal Restaurants

The restaurant industry and the government have been on the loggerheads since forever. This has especially escalated with the augmenting of the new era of the GST. The new happenings between these two sectors reached its new peak when the GST Council recommended earlier this month that GST for restaurants to be cut to 5% with no input tax credit, from 18% previously with input credit. This action on the part of the GST council has further created a buzz around the country when both the restaurant and the government started their blame game with stronger vigour.

The Events that Unfolded in the Aftermath of Input Tax Withdrawal

GST made it very clear on the 15th of November, that the basic reason for which they have initiated this new rule is that they found that the benefits were not passed on to the end consumers by the restaurants. However, the government realised that eating out did not become cheaper even after the withdrawal of the input tax credit and the GST reduction, this is because some restaurants have increased the base price of menu items.
The restaurant’s tried to justify their actions by stating that they are free to hike prices of their base menu items and that since they will not be receiving the input tax credit, this will, in turn, by increasing the total input cost of the restaurants. The Government official, in turn, stated that while it is within their rights to increase the price of the menu items, doing so on the midnight of the reduction in the GST indicated profiteering intentions on the part of the restaurants.
Overruling the arguments put forward by the restaurants, the government officials stated that the calculations by the government show the impact of input tax credit would not be more than 6% of the base price for large eateries which have franchises and will be as low as 2% for the smaller ones. The government officials realised that a lot of franchise chains have not lowered the price, and have not passed on the benefits to the end consumers.

The Restaurant Industry Planning To Approach The Finance Ministry!

In the aftermath of the withdrawal of the input tax credit and the reduction of the GST to 5%, the total input cost for the restaurants has gone high. Hence, the restaurants association is planning to approach the Finance Ministry to seek input tax credit at least on major expense components such as rents. The restaurant association stated that rent is a critical fixed cost, especially for outlets operating in prime locations in metros and at airports.

Garish Oberoi, the President of the Federation of Hotel & Restaurant Associations of India, stated that although the reduction of GST to 5% will encourage more consumers to come out and dine, still they would request the government to not stop input tax credits on rent completely and for upgrading of restaurants, as other businesses do get input credit on these expenditures.

The National Restaurant Association Of India plans to send representations to the finance ministry on this matter. Rahul Singh, the Vice President of NRAI also stated, that rents actually kills the restaurant owners since it is so high, especially in prime locations. He even went on to say, that the telecom, insurance and the bank sectors have got the best benefits out of input tax credit since GST came into force, as all capital and service expenditure can be claimed clearly. A restaurant, on the other hand, has variable sales, which depends on the seasons and months, and these are linked with variable costs such as the supply of products and salaries.

The decision of the government will only be understood in time. All we can do is hope that the two sectors solve their eternal conflict so that the consumers can dine in peace!

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