The restaurant industry which was already under pressure post demonetization is now feeling a double whammy with input tax credit removed in the revised norms of the goods and services tax (GST), last year.
Multiple food startups are suggesting the government to re-introduce the input tax credit in Budget 2018 even as they want an increase in GST.
Post the reduction of GST from 18 percent to 5 percent, the bill for customers has increased by about 8-10 across multiple cafes and food-chains. It has also led to a reduction in sales, claim cafe startups.
“The abolition of the input tax credit and the reduction of GST has hit the restaurant industry (revenues) at least by 20 percent. Now because of these policies, the restaurant business has become one of the expensive businesses to start in India,” said Riyaaz Amlani, CEO of Impresario Entertainment & Hospitality Pvt Ltd, that runs Social and Smoke House Deli brand of restaurants.
Several cafe chains including Chaayos, Social, Smoke House Deli, Wow Momo, McDonald’s have been deliberating an increase of 8-10 percent in food prices post the amendment in GST rules. Some have already hiked prices.
“We are hoping for the government to do something about introducing input tax credit for restaurants. We need some ease on the capital expenditures of the restaurant business. The reduced GST tax rate of 5 percent hasn’t resulted in an increase in the consumption by customers. According to Sagar Daryani, co-founder of Wow Momo, increasing the price of the food items becomes the last resort for the restaurant owners since they also do not want to lose out on profits.
"A flat 5 percent GST with no input credit makes a profitable venture like ours less profitable. We now have to incur the loss of not being able to avail input credit," said Sagar Daryani, founder, WoW Momo.
But an increase in prices can lead to a decline in sales. "We expect the tax policy to be re-looked at in such a way so that there is an exemption or option for brands that are expanding and are able to charge a larger GST but also avail an input credit. The government can set up a benchmark for the expansion, growth, revenues to ensure compliance and look at the implementation of the same," he added.
Started in 2008, Wow Momo raised about USD 8.4 million from investors such as Bandhan Bank, Lightspeed Venture Partners, and Indian Angel Network.
Vikas Panjabi, co-founder of The Chocolate Room suggests that the tax slab should be in the range of 12-15 percent adding that the government should have a startup friendly policy.
"Big businesses are not much affected but startups are facing losses. The government should not kill the dreams of startups. They should add some benefits for startups,” he said.
The Chocolate Room has a presence across 63 cities in India including Ahmedabad, Mumbai, Hyderabad, Lucknow and Delhi.
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