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Higher menu prices may eat into sharp GST cut on your food bill

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NEW DELHI/GUWAHATI: Eating out will cost 5-6 per cent less as the GST Councilon Friday slashed the levy on all restaurants, other than those in high-end hotels, from 18 per cent to 5 per cent.

At the same time, it did away with the benefit of input tax credit for restaurants with an annual revenue of Rs 1 crore or more as they were not passing on the benefit of lower tax incidence to consumers. “Since they did not pass on the benefit they are not entitled to the benefit (any longer),” finance minister Arun Jaitley said after the meeting here.

Restaurants criticised the government’s move and said that menu prices will go up by 6 per cent as the tax credits had been withdrawn. As a result, a dish that earlier cost, say, Rs 500 will now cost Rs 530, if eateries decide to pass on the additional burden to consumers.

At the same time, the tax burden will decline from Rs 90 (18 per cent of 500) to Rs 26.50. As a result, the bill will come down from Rs 590 to Rs 556.50, a decline of around 5.7 per cent, the owner of a leading restaurant chain explained.

“This will make eating out and ordering food at home more affordable for consumers and will lead to a significant growth in the organised restaurant segment,” said Hari Bhartia, cochairman of Jubilant Foodworks, which runs Domino’s Pizza and Dunkin Donuts chains in India.

While the cut in the levy was welcomed by restaurateurs+ , they wanted the benefit of input tax credit to stay. “Our margins were already constricted. Without input tax credit, it will become more expensive to run the restaurant. Overall, though, it is a good move for consumers,” said Zorawar Kalra, founder and managing director of Massive Restaurants that runs popular outlets Masala Library, Farzi Cafe and Pa Pa Ya.

“Denying the input tax credit benefit goes against the very grain of GST and will push up costs by 10 per cent which will be added to the menu price. So, effectively the consumer will get a marginal benefit and not a big relief,” Rahul Singh, National Restaurant Association of India vice-president and CEO of The Beer Cafe, said.

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