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Expansion 13 Nov 2017

Will Lower GST rate Push Restaurants to Hike Menu Price

Cutting GST and bringing taxes down will create lots of opportunities and open up newer doors for both, brands as well as consumers.

By Nusra Sub Editor

With people eating more than thrice in a week, government has blessed the customers by cutting GST rate to as low as 5 per cent effective from 15th of November.  No matter whether you eat at an AC or a non-AC restaurant, the GST rate charged by restaurants has been cut to a uniform 5 per cent from 12 per cent or 18 per cent earlier. Restaurants, however, won't get the benefit of input tax credit - a feature of the new GST under which manufacturers and service providers can deduct the tax previously paid on the goods they purchased.

“The new GST rate of 5% is a welcome change in the Industry. This will certainly attract more guests who will now have to pay lesser as compared to the previous 18% GST. It’s also great news for International Chains who have been planning to set up base in India but have been sceptical of the high taxation,” shares  Aji Nair, CEO, Mirah Hospitality.

Cutting GST and bringing taxes down will create lots of opportunities and open up newer doors for both, brands as well as consumers who will get a varied choice of restaurants to choose from. Also, with people travelling and exploring more on the cuisine side this move has come as an add to promoting tourism in the country and bring it at par with the global countries like Singapore and Dubai which has already become dining destinations globally.

“We welcome the reduction in GST slab from a very high 18% in an A/C restaurant to 5% without any distinction of the air-conditioning. This is certainly historic. However, the very concept of ITC is central to GST, which is to prevent cascading of taxes. Denying the ITC benefit goes against the very grain of GST and will push up the costs by 10% which will be passed on the menu price. So, effectively the consumer pocket will get a marginal benefit and not as it seems,” Rahul Singh, Vice President, National Restaurant Association of India (NRAI) who also runs The Beer Cafe.  This move is also retrograde to bringing in players in the organised segment. In fact, restaurants are like the "gate keepers" which have worked with suppliers to bring them into the formal economy.

Commenting on the same, Dilip Datwani, President, HRAWI says, “Reduction of GST rate to 5 per cent for all restaurants has come as a pleasant surprise. This is a big boost for the industry which has been reeling under a slowdown for quite some time. However, denying the ITC benefit on the grounds that we have not been passing on benefits is unfair. As of now, none of our vendors have reduced prices and there has not been any reduction of prices in raw materials for us. In fact, post introduction of GST the costs of operations and raw materials have actually gone up. The move to remove ITC amounts to double taxation and is inflationary.”

The experts also view the ITC exemption against every tenet of ease of doing business. However, overall the industry welcomes the developments as it will encourage the consumer to eat out again. Not only this at a time when there is lots of buzz in the industry GST has come something as revolutionary and will bring some disruptions in the initial stages.

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