Reduced GST on restaurant bill likely to drive prices up

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Reduced GST on restaurant bill likely to drive prices up
Reduced GST on restaurant bill likely to drive prices up

New Delhi : The GST Council's decision to cut taxes on all restaurants to 5 per cent came into effect on Wednesday. While the reports suggested that several establishmnets revised their prices to reflect new rates, others reportedly continued to charge 18 per cent GST despite notification. 

According to a report, assistant manager of a prominent Bangalore-based hotel in the city: “We are yet to receive clarifications from our seniors, so we have not made any changes still.” Another restaurant in the heart of the city had a similar explanation. The chartered accountant of a restaurant on Cunningham Road says, “We got the notification late and we are still updating our systems,” the New Indian Express reported. 

Several members of the National Restaurants Association of India (NRAI) believe that even in compliance with the new order, customers are not likely to enjoy a reduced bill.

Unfortunately for the food industry, the GST rate cut comes with withdrawal of the input tax credit (ITC), which is important to the restaurants as they could claim an offset on the tax they pay on inputs (like raw materials) against the tax on the end products. It accounts for three-four percent of profit of a restaurant, according to the estimates by Federation of Hotels and Restaurants Association.

Without ITC, the restaurants will most likely increase their prices by six to 10 per cent, leaving the customers with no additional savings. 

Francis Vellara, owner of Tom’s Hotel was quoted in Express as saying, “Without ITC our input costs are at the highest, but we still have gone ahead with the tax change to avoid inconveniences to our customers."

However, Rahul Singh, Vice President, National Restaurant Association of India (NRAI) and Founder and CEO, The Beer Cafe, opines that lower GST will bring good news for the industry. 

"The new GST rate is definitely beneficial for the consumer. And there is the feel-good factor of lower GST. So, the propensity of eating out will be higher," Rahul Singh told IBT.