GST: The Good, Bad and the Ugly for Restaurant Industry

The recent buzz about the GST (Good and Service Tax) has evoked mixed reactions from the veterans of the restaurant industry. Although they are happy to see the small time players being exempt, they are still pretty upset about having heavy taxes levied on the high end and luxury players in the market.

How GST Impacts Customers

With the GST coming into play, all the state taxes such as service tax, VAT, sales tax, etc. would be replaced with the single GST. So, the next time you dine at your favorite restaurant, you would not see the long and elaborate list of various taxes you are expected to pay. However, the restaurants can add the service charge to your bill in the form of GST.

So, how does this bill impact the common man? Is it beneficial or will it be an additional burden on the already burdened consumer? The simple answer is: It depends on where you decide to eat.

The government has set the tax bracket of 12% for restaurants with an annual turnover of ₹50 lakh per annum, and those below ₹50 lakh turnovers would be charged only 5%.

If you are a fan of all those value-for-money restaurants, you have to shell out more as there is a high probability that these restaurants fall into the 12-18% tax bracket under the GST. All these restaurants operate on high volume and very thin margins and there is a giant possibility that they will pass the tax burden onto the consumer in the form of increased prices.

For instance, if you are paying ₹120 for the delicious butter chicken in a value-for-money restaurant, there is a high probability that you would be paying approximately ₹134 (at 12% GST rate) in the current scenario.

But, if you happen to be a regular customer at some of the small eateries whose turnover is under ₹50 lakh, the owner pays only 5% as against the current slab of 10.6%. This benefit can be expected to pass on to the customer directly or indirectly.

Impact on Hotel and Restaurant Business Owners

The proposed GST has not been welcomed by the hotel owners because hotels with rents below ₹1000 a day would be exempt from GST, but those with rents ₹1000-₹2500 would be charged at 12%, ₹2500- ₹5000 at 18% and above ₹5000 would at 28% tax.

The AC restaurants with a liquor license will also be charged at 18%.

The good news for restaurant owners, however, is regarding the credit input. A credit input means, at the time of paying tax on output, you can reduce the tax you have already paid on inputs.

For Instance,

Tax payable on output (final product sale) is ₹200.

Tax already paid on input (Purchase) is ₹100.

You can claim credit input of ₹100 and deposit only ₹100 in taxes.

There is a possibility that you can claim input credit only if your supplier has deposited the tax he has collected from you. So, every input credit will be matched and validated when you move forward to claim.

The restaurant owners do have a lot to cheer, for under the current system they do not have any option to adjust the service tax liability with the credit of input (raw materials) VAT on goods consumed. But under the GST, the credit of input will be available for adjustment against the output liability.

Thus, we can conclude that in the end, GST can be welcomed with delight by both the customers and restaurant owners. Now we can joyfully scour the neighborhood for new food joints. 

Picture Courtesy – the Internet

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