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Centre, states differ on tax credit for restaurants

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NEW DELHI: Restaurateurs haven’t kept a closer watch on developments in Guwahati than they are doing now. And, it has nothing to do with the food business in Assam’s capital but with the GST Council meeting where the states and the Centre are all set to reduce the tax rate for restaurants from 18% to 12%.

But the big question is whether restaurants will continue to enjoy the benefit of input tax credit (ITC), which helps them take advantage of the tax paid on inputs as well as rent. While a panel of five state finance ministers is in favour of retaining tax credits, the Centre is looking at a different option.

Sources told TOI that the Centre believes that restaurants have pocketed the ITC gains that should have passed on to consumers, a charge that restaurants are questioning.But a bigger concern for the finance ministry and the Central Board of Excise and Customs (CBEC) is the possible revenue loss due to the move, apart from difficulties in administering the scheme. In addition, the worry for officers is the huge leakage in the service sector, with restaurants seen to be a major source.

A tax official said that when it comes to input tax cre dit, the ingredients pose a major problem in the current structure. “Restaurants will claim that they have used branded atta or daal, while they may be using unbranded stuff (that attracts no GST).You can’t expect us to enter kitchens to check this.“

While there is general recognition that rents are major source of tax credit for restaurants, government officers said that a mechanism can be devi sed where this benefit can be passed on to the eateries. Several states seem to be backing the position taken by restaurants.

Restaurants said input tax credit will result in increased sourcing from the unorganised sector and defeat the move to create a GST chain with vendors in the tax net. In any case, input tax credit will allow landlords, who were letting out space, to be part of the chain and bring transparency .

While welcoming the move to cut the levy from 18% to 12%, the National Restaurant Association of India has demanded that the ITC benefit be retained at all cost. “The very concept of ITC is central to GST, which is to prevent cascade of taxes. Denying the benefit of ITC goes against the very grain of GST and results in tax cascade and double taxation,“ it said, adding that withdrawal of the facility will push up menu prices by 10-15%.

 

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