GST at 5% for restaurants: Eating out will become cheaper for now, but expect eateries to hike prices in future

Eating out and ordering takeaways will now set you off only 5 percent by way of tax instead of the earlier 18 percent (if ordered from AC restaurants) and 12 percent (non-ac restaurants). Restaurants in starred-hotels that charge Rs 7,500 or more per day room tariff will be levied  18 percent GST (Goods and Services Tax) but will be allowed input tax credit (ITC), a facility to set off tax paid on inputs with final tax. Those restaurants in hotels charging less than Rs 7,500 room tariff will now charge 5 percent GST, but will not get ITC.

Not only guests but also restaurateurs are happy with the GST Council lowering tax rates to 5 percent except for those in luxury hotels. For instance, a customer earlier would have to pay 18 percent GST for a cup of tea costing Rs 40 which would bring the total bill to Rs 47.50. Now at a flat GST of 5 percent, the bill would come to only Rs 42.

Vinod Gulati, managing director, Gulati Restaurants in Delhi is looking forward to more footfalls for the popular buffet at his restaurant in Pandara Road Market costing Rs 865 (with 18 percent GST) will  be now available to diners at Rs 765 from 15 November (today).

That is the popular sentiment with restaurateurs  looking forward to  welcoming more guests courtesy 5 percent GST. The GST is a welcome move, said Garish Oberoi, Treasurer of Hotel and Restaurant Association of Northern India (HRANI) and Vice President of Federation of Hotel and Restaurant Associations of India. GST at 18 percent levied earlier was impacting business, Oberoi said, adding that rising inflation also made it difficult to attract footfalls. However, he does not feel the net effect of 5 percent GST will be large enough to help the industry which has seen less guests since demonetisation. But the association would not sit still and will continue to lobby for further cuts in the business so that the ‘consumer wins’ and also restaurateurs who are not eligible for ITC, said Gulati.

In some cities, like Delhi for instance, GST at 18 percent was a boon for customers as they were paying 12.5 percent VAT and 5 percent service tax which brought the total tax liability to 18.5 percent. GST shaved off 0.5 percent on the guest’s bill when it was introduced, say some restaurateurs.

The restaurant business was impacted since the announcement of demonetisation on 8 November, 2016 and later with GST, the industry saw a decline in footfalls of around 25-30 percent, said Pradeep Shetty, media advisor to Hotels and Restaurants Association, Western India (HRAWI). With the current announcement of rationalisation of taxes at 5 percent GST, he hopes people will frequent hotels more. Calling the GST a ‘revolutionary move’, Shetty says that the latest move of slashing rates to 5 percent will enable the ease of doing business. “It makes the environment conducive to do business,” he said.

Inspite of a flat 5 percent GST on restaurants, there is a niggling worry in the minds of consumers. They wonder if the 5 percent GST will prompt restaurateurs to hike prices. That is a possibility which can’t be ruled out, industry experts said. However, they also said price hikes on restaurant menus  may not become a reality in the near future. “If a restaurant has a signature dish which attracts clientele, it may hike its price as ITC has been taken away,” said Gulati, though he does not foresee it happening soon.

Restaurants may now have to put their plans for expansion and development in the cold storage. Withdrawal of input tax credit would mean that majority of expenditure by way of capital expenses, franchising, outsourcing, select food items etc. will take a beating as GST paid on such services or expenditures will not be available for input tax credit, said the Hotel & Restaurant Association Western India  (HRAWI). “Thus, withdrawal of input credit, apart from rendering the basic fundamentals / objectives of the GST model of indirect taxes, is anti-expansion and development and will not allow establishment to pass on any reductions to the customers,” the association said.

Those who will be hit hard will be hotels and restaurants which stand on rented property. “Rentals are high and with no ITC available to them, they will be affected a lot by GST even at 5 percent,” said Shetty. So it is not going to be good news for long for customers, perhaps.