Since the inception of the Good and Services Tax (GST) on 1st July 2017, it has been in media and news regarding the changes in the tax structure that has been happening. Yet again, on 10th November 2017 came another news for the restaurants as GST rate slashed down to 5%. A uniform 5 percent tax will be levied for all restaurants, both air-conditioned and non-AC as said by the Finance Minister Arun Jaitley. Currently, GST is levied at 12% on food at non-AC restaurants, while it is 18% for air-conditioned ones.
GST Rate Cut Down But Input Tax Credit (ITC) Facility Withdrawn
Earlier in the five-member Group of Ministers (GoM) which included ministers like Bihar Deputy Chief Minister Sushil Kumar Modi and Finance Ministers of States like Assam, Jammu & Kashmir and Punjab which were set up by the GST Council had its meeting on 6th October and they noticed and examined that the restaurants are not passing any benefits to their customers. They continued to charge 12 or 18 percent. Hence, the ITC facility is being withdrawn and a uniform 5 percent tax is levied on all restaurants without the distinction of AC or non-AC as explained by the Finance Minister, said Arun Jaitley on Saturday.
However, the restaurants in starred-hotels that charge Rs. 7,500 per day room tariff will be levied 18% GST but ITC is still allowed to them. Whereas, restaurants in hotels that are charging less than Rs. 7500 room tariff will charge 5 % but will not get ITC.
Impact of the Cut in GST Rate on Restaurants
Dining out becomes cheaper for customers as GST rate on all restaurants alike AC or Non-Ac has slashed down to 5%. It is expected that this will have a positive impact on the restaurant business as lower GST Rate will improve spending and increase the propensity of eating out for customers now. So, a better footfall is expected.
The Federation of Hotel and Restaurant Associations of India (FHRAI), the apex body of the F&B industry has welcomed the move by the GST Council of slashing down rate to 5%.
“We are extremely thankful to the government for making these much-required changes in the GST regime. This will help restaurants across India rationalize tariffs,” FHRAI president Garish Oberoi said.
Where few of the restaurateurs are very happy with this move of the government, there are few who have expressed distress on the withdrawal of ITC as there is no reduction in the prices of raw materials and rents that the restaurants have to pay.
“The removal of input tax credit is a big problem as costs for the restaurants which include rents etc will go up. We have to pay GST for all this but we won’t get it back. The margins could get significantly constrained. For a business, it remains to be seen if the volumes will offset the lack of input tax credit.” said Zorawar Kalra, Managing Director, Massive Restaurants.
The situation seems little uncertain for the restaurant industry as we might see more customers in restaurants but lesser profits/revenues for the restaurants.
Stay tuned to The Restaurant Times for more such GST Rate updates and about the Restaurant Business.