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As the voice of the Indian restaurant industry, we represent 100000+ restaurants & an industry valued @ USD 4 billion. Whether a chain or independent restaurant, the NRAI is here to help every step of the way. Join us!

Features

Why eating out might just get more expensive

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The central government is working on a proposal to reduce GST on restaurants from 18% to 12%. This might make you think that dining out will be easier on the pocket, but that won’t be the case. Here’s why. Prior to GST, there was VAT, which was 12.5 per cent on food and another 6.5 percent on service, because it was adjudicated that a restaurant not only gives you food, but also service. So the customer effectively paid 19 per cent on the bill. But with GST, 18 per cent was decided for restaurants which were air-conditioned or served liquor. Some officer went to a restaurant and said, you know what, restaurants haven’t reduced their prices, despite GST. But the point of the matter is that we didn’t get any further benefits to be able to do so. Now, the government is doing a simplistic calculation, assuming that the customer will benefit. However, the caveat is that they will take away the input credit. The whole point of GST is that it is a value-addition kind of tax, like a waterfall. By taking away the input credit, it has effectively raised our expenses by 10 per cent.

To explain this, let’s say your entire bill comes to Rs 100. Under the current GST regime, the total bill would be Rs 118. What the government is proposing to do is to reduce the tax slab from 18 to 12 per cent, so technically the customer pays only Rs 112.

But for a restauranteur who is working on a 15 per cent margin, since the input cost of 10 per cent has to now be absorbed by him, it will take his cost up and he will have to up his selling price. Neither the restauranteur and customer will benefit from this.

If the above proposal comes through, the input credit we received as a set off against the GST charged to a customer will no longer be available. So, keeping our margins intact, we have to increase prices by 10 per cent, and the customer will at least pay about 10 per cent more. Restaurants are not a frivolous indulgence; the industry contributes 2.1 per cent of India’s GDP. Right now, we are providing 6 million jobs across the country, which is two-and-a-half times that of IT. It is an industry that is growing at 10 per cent year on year.

We have written to the Finance Minister and gone and met several others in the last four days. We are hoping that they keep the slab at 12 per cent, but allow us the benefit of input credit which is in the spirit of GST. 18 per cent of GST for food industry is the highest slab anywhere in the world (it is around 4-8 % elsewhere).

The mindset of the government is that the restaurants are not passing on the benefit to the customers, so let’s take away the input credit. A group of ministers are supposed to meet on the 29th of October and submit their final proposal by November 9th. We have explained our case to a group of ministers who have been extremely sympathetic to our cause, and we’re hopeful that better sense will prevail.

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