It seems that the new GST roll out for restaurants and hotels left a bitter taste in the mouths of customers and restaurateurs as well
Text: Rochelle D’Souza Images: Various sources
Over the past week, are shying away from what used to be a regular social institution – eating out. Why? Blame it one GST. According to the India Food Services report 2016, brought out by the National Restaurants Association of India (NRAI) 58% of the Indian population eats at a restaurant, hotel or local eatery at least once a week. With the onset of the Goods and Services Tax many citizens are under the impression that they are at the receiving end of this newly implemented taxation regime thanks to a lack of proper awareness and insight into the matter. Let’s get down to why you shouldn’t you’re your meals harder to di-GST and find out what’s the real deal with the GST implemented for hotels and restaurants.
Restaurateurs said they are expecting a marginal drop in customers for the first couple of months before people get used to the new taxation, with many stating that they are already seeing a drop of about 10-15 percent of customers.
Contrary to popular belief, the implementation of the GST was aimed at making eating out almost 2% cheaper. “The GST has subsumed 17 indirect taxes and 22 cesses (which varied from one state to another) and implemented a singular regime nationwide. Earlier a normal a/c restaurant bill used to show a plethora of taxes including VAT and service tax all of which amounted to around 20.5%, which under the GST is now only 18% (CGST 9% + SGST 9%)” says BasuRamnarayanKarthik, Deputy Commissioner, Kerala State Commercial Tax Department.
The GST is also expected to affect the cost of food delivery, which is to increase by about 5 percent, so while the cost of food will not be affected significantly, ordering food home will become more expensive.
Problem at Hand
Following the implementation of the GST the Tax Department has been flooded with complaints from customers pointing out that many traders were making profits by imposing the GST on the pre-GST price, Karthik said, adding that hotels and restaurants were doing this the most.
“It has been noticed hotels and restaurants and outlets selling daily consumables instead of giving discounts because of reduction of tax or at least keeping price at the same level had increased the prices,” he alleged. “Also, it has been brought to our attention that the pricing of commodities has increased although we see no indication or reason in the market for such a hike. For example, the tax on chicken was around 16.5% previously which, after implementation of GST is no 0%, but chicken prices have rose to Rs.130 following implementation of GST which cannot be justified. This in turn is taking a toll on restaurant owners. What should be happening is a reduction in prices of commodities which would mean that hotels and restaurants can translate into lesser prices on their food.” said Karthik.
In a statement made to the press earlier this week state Finance Minister T M Thomas Isaac stated that though prices of many commodities had come down due to GST, the consumer was not getting its benefit. “The hotel and restaurant industry has added 12-18 per cent GST tax on the price of food fixed in the pre-GST scenario. This has resulted in drastic increase in the cost of food items creating a negative impression on GST among people,” Isaac said.
Impact on Restaurant Business Owners
Ambiguity still persists among business owners on issues like input credit and whether direct benefits on food and liquor would be passed on to consumers. “Market forces such as competitive pricing will apply too and this is when we become unsure of how things will play out. The irony of our industry is that it is very labour intensive and employment generating, our government thinks this as a cash cow and wants to extract as much as they can. Instead of supporting us by putting the F&B industry in the GST bracket of 5% as is the norm all around the world, they have put us in the slab of 18% GST. The government should be considerate about small restaurant businesses and give them flexibility by introducing such norms in a phase wise manner.” the manager of a restaurant in Kochi who chose to remain anonymous.
“Restaurant owners actually have reason to celebrate. Under the VAT regime, restaurant business owners did not have any option to adjust the output service tax liability with the credit of input VAT on goods consumed. However, under GST both these taxes will be subsumed into GST and thus credit of input will be available for adjustment against the output liability, irrespective of goods and services.” Karthik says.
The state government has moved for the creation of an anti-profiteering authority, while other mechanisms to file complaints on hike of prices of goods are in the works of being set up by the government. This should would go a long way in controlling unreasonable pricing and avoiding resentment among people.