Few players in the restaurant industry are losing business due to GST regime but others say that business has been usual.
The rollout of the goods and services tax (GST) has turned mid-sized restaurants into an anxious lot. According to a report, medium class hotels have lost 25 percent of business since July 1. But is this just a temporary blip or a permanent blow to the business.
Here's a look at what has changed for the restaurants business and how the new regime has treated them.
Under the new tax regime, 12 percent GST is applicable to non-AC restaurants and 18 percent to AC ones. Earlier, hotels taxed food at 11 percent including 5 percent value added tax (VAT) and 6 percent service tax after some rebate.
However, not all restaurants report dismal performance so far. Beer Café founder Rahul Singh told Moneycontrol that business until now has been as usual. “Dining out is an inescapable phenomenon and a non-discretionary spend. It’s the discretionary expenditure like buying a car or any planned purchase etc. which will see a direct impact for the consumers,” he said.
As pointed out by Revenue Secretary Hasmukh Adhia, GST has, in fact, made it possible for restaurants, hotels and eateries to cut rates on food items in their menu to reflect the benefit of being able to set off tax paid on inputs under GST.
Must watch: Another Tryst With Destiny! How GST Will Change Your Life After July 1
Previously, a service tax was levied on the bill. However, tax paid by the hotel or restaurant operators on inputs could not be set off against the tax on final bill.
"Most of the restaurants should revise downward the rate charged on food items in their menu because of ITC which is now available. So ITC should be accounted for now in form of reduction in the value of supplies which they are giving," Adhia said in GST Master Class.
Beer Cafe's Singh agrees food prices on the menu may come down by 3 to 5 percent but notes “Input tax credit was already available in both the earlier taxes (State Vat and Central Service tax).” Earlier, restaurants had to charge VAT as well as Service tax on the bill. And all the product supplies got the input vat credit and the services component got the service tax input.
As per Singh, with the two taxes subsumed into GST, apart from the simpler compliance there will be benefit of taking in input tax credit of inter-state supplies, imported goods and capital expenditure in setting up or renovating restaurants. “The actual benefit will be seen after a quarter,” he said.
Service of liquor is not included in GST and the restaurant industry expressed its disappointment as they will have to produce two bills. Although, this will increase the cost of compliance, it hasn’t affected the business yet.“It’s definitely a logistics challenge to keep two transactions and compliance. From a consumer point of view, we don’t see any growth impediment as the consumer pays for the total of the two bills presented,” Singh said.