The National Restaurant Association of India (NRAI) has, in a letter written to the Finance Ministry, suggested a dual GST structure for the industry, reported The Economic Times.
The body, which represents over five lakh restaurants across the country, has demanded that restaurants be given the choice between the current five percent levy and a higher rate of 12 percent, but with the right to claim a refund on input taxes.
The current GST rate of five percent does not allow restaurants to claim input tax credit (ITC) against taxes they paid on expenses such as rent and raw materials.
The GST levied on taxes was reduced from 18 percent to five percent in November 2017. While the 18 percent rate allowed them the right to claim input tax credit (ITC), the five percent rate did not.
In the letter to the government, NRAI said denial of input tax credit has severely impacted the food industry and even led to the closure of 20,000 outlets last fiscal.
The letter added that in order to reduce their operating costs, food service providers were relying on unregistered, non-tax paying suppliers for almost half of their inputs.
“When ITC (input tax credit) is denied, it nudges a restaurant to go illegal. We are suggesting an option — those who don’t want to claim the input tax credit be levied 5 percent GST and those who are ready to pay 12 percent be allowed to claim the refund,” the article quoted NRAI President Rahul Singh as saying.
As per the letter, growth in the restaurant sector slowed to two percent in FY19, with most players having suspended their expansion plans. “Besides (other levies), 18 percent GST paid on food service from aggregators such as Swiggy and Zomato has become an additional cost to restaurants. The government is losing annual GST revenue of Rs 2,937 crore due to denial of input tax credit,” the report quoted the letter as stating.
The letter also pegs the size of the food industry at Rs 4 lakh crore in FY19, with a GST contribution of over Rs 14,500 crore (solely from the organised sector). An additional Rs 13,000 crore could potentially be added in tax revenue, taking into account the unorganised sector (which constituted around 65 percent of the industry in FY19), the report stated.
A dual GST structure would benefit 19.6 lakh restaurants that have an ITC of less than two percent of their turnover without GST. At the 12 percent GST rate, those with an ITC of between four percent and eight percent of their turnover would benefit six lakh restaurants, it added.
Moneycontrol couldn’t independently verify the report.