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GST Revised Rates: Eating out in hotels, restaurants to become cheaper from today

GST Revised Rates: Eating out in hotels, restaurants to become cheaper from today

GST rates slashed: Eating out in hotels, restaurants to become cheaper from today

Eating out in hotels and restaurants will become cheaper from today (15 November) with the Goods and Service Tax (GST) Council having slashed rates to five percent from 12 and 18 percent earlier. However, there is no formal notification from the government as yet.

A uniform 5 percent tax was prescribed by the council for all restaurants, both air-conditioned and non-AC. Union Finance Minister Arun Jaitley said that the Input Tax Credit (ITC) benefit given to restaurants was meant to be passed on to the customers.

Currently, 12 percent GST on food bill is levied in non-AC restaurants and 18 percent in air-conditioned ones. All these got input tax credit, a facility to set off tax paid on inputs with final tax. The council said the restaurants, however, did not pass on the input tax credit (ITC) to customers and so the ITC facility is being withdrawn and a uniform 5 percent tax is levied on all restaurants without the distinction of AC or non-AC.

Restaurants in starred-hotels that charge Rs 7,500 or more per day room tariff will be levied 18 percent GST but ITC is allowed for them. Those restaurants in hotels charging less than Rs 7,500 room tariff will charge 5 percent GST but will not get ITC.

Also, tax on wet grinders and armoured vehicles was cut from 28 percent to 12 percent, Jaitley said, adding the tax rate on six items was reduced from 18 percent to 5 percent, on 8 items from 12 percent to 5 percent and on six items from 5 percent to nil.

Chewing gum, chocolates, coffee, custard powder, marble and granite, dental hygiene products, polishes and creams, sanitary ware, leather clothing, artificial fur, wigs, cookers, stoves, after-shave, deodorant, detergent and washing power, razors and blades, cutlery, storage water heater, batteries, goggles, wrist watches and mattress are among the products on which tax rate has been cut from 28 percent to 18 percent.

“This revision in GST rate for restaurants is positive, as it would bring down the dining-out cost, supporting footfalls and revenues at a time when most organised restaurants are struggling to grow demand,” ICRA Vice President and Sector Head Pavethra Ponniah said.

“As most major inputs for restaurants like grains (not packaged), vegetables, poultry and seafood are exempt from GST, the input credit advantage available for restaurants was negligible,” Ponniah said, adding that restaurants were also not passing on any benefit of input tax credit to the consumer under GST.

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Source :  Firstpost
Why it’s back to GST battlefront for restaurants

Why it’s back to GST battlefront for restaurants

Why it's back to GST battlefront for restaurants

The restaurant sector, despite its remarkable growth story, seems to be continually getting on the wrong side of the regulatory authorities.

When the media was celebrating the distinct possibility of the GST levied on restaurants being reduced to a uniform 12 per cent – instead of the present slabs of 12 per cent for non-AC restaurants and 18 per cent for their AC counterparts – what they missed was the massive downside of the proposal now being considered by a five-member group of ministers (GoM) set up by the GST Council after its last meeting on October 6.

Consisting of Bihar deputy chief minister Sushil Kumar Modi, the finance ministers of Assam (Himanta Biswa Sarma), Jammu and Kashmir (Haseeb Drabu) and Punjab (Manpreet Singh Badal), and Chhattisgarh commercial taxes minister Amar Agrawal, the GoM, at its next meeting on October 29, will consider the GST Council’s suggestion that the rate reduction should take place simultaneously with a withdrawal of input tax credits, which are granted to GST payers to enable them to deduct the various taxes they pay on inputs from the tax they pay on the output.

Restaurants, for instance, are allowed to deduct the GST they pay on rentals, processed foods, as well as housekeeping and security services, which they almost always outsource, from the GST they are required to collect from customers for food and soft beverages (they get no such benefit from alcohol sales, which are still governed by the old and unchanged taxation system).

Also Read: GST composition scheme: GoM consensus on providing relief to small restaurants

The GST Council believes the restaurants are not passing on the benefits of this system to customers and, therefore, not eligible for input tax credits (ITCs). ITCs works in a way that all vendors and suppliers who may have earlier been in the unorganised sector are incentivised to come into the organised sector and file tax returns. All participants in the food supply chain, as well as restaurants, are expected to pay taxes at reasonable rates. Fair enough.

If they are withdrawn, however, the National Restaurant Association of India (NRAI) believes, the move could lead to a bloodbath in the sector, which is still reeling from the effects of demonetisation, the complicated switchover to the GST system, and the recent Supreme Court-imposed ban on alcohol sales within 500 metres of national highways (the matter finally got settled in mid-July, when the apex court upheld the denotification of national highways by city administrations).

A withdrawal of ITCs, NRAI president Riyaaz Amlani pointed out, would raise the operating costs of restaurants, especially the standalones, by 7 per cent-10 per cent and cause an erosion of up to 40 per cent of their margins.

Restaurants in five-star hotels, on the other hand, are not much affected. They don’t have to pay rents and housekeeping and other support services are available to them in-house, which may explain the lukewarm response of the luxury hotels to the move, for they would stand to gain much from the rate drop and lose little from the withdrawal of ITCs.

Countering the GST Council’s charge that restaurants have not cared to pass on the benefits of ITCs to their customers, Amlani points to three ground realities:

(1) No more than 30 per cent of suppliers have been able to register themselves for GST. So there’s no ITC that can be claimed for a majority of the purchases that restaurants make.

(2) In the new tax regime, certain critical items, such as processed food, have become more expensive because of GST going up from 5 per cent to 12 per cent. “Taxes on many such inputs have gone up, so if we do not get ITC, our cost of running restaurants will go up, leading to higher menu prices for customers,” Amlani cautioned.

(3) restaurants are battling food inflation, rising HLP (heat, light and power) costs and wages, and intense competition, which are buffeting their margins and at the same time stopping them from charging more realistic prices.

“The core of GST is the implementation of ITC, which removes tax on tax (popularly known as cascading of taxes),” says Amlani. “This undesirable tax cascade, impacting the common man, has been the bane of older tax systems prevalent before the recently implemented Goods and Services Tax. If GST is brought down to 12 per cent without continuing ITCs, it will undermine the spirit and intent of GST and be akin to going two steps behind the archaic tax that previously existed. This move could also be very confusing for customers as prices of goods will go up despite a fall in tax rates.”

For the NRAI, it’s back to the trenches and its delegations are meeting the GoM members in five state capitals in the week ahead to lobby for a 12 per cent GST minus the dropping of ITCs. The fate of the matter will be sealed at the next GoM meeting on October 29, and if its members green-light the move, it will become the law when the GST Council meets in Guwahati on November 9.

For restaurants, especially the standalone, that would spell serious trouble.

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Impact of GST on Food Services and Restaurant Business in India

Impact of GST on Food Services and Restaurant Business in India

GST Impact on Restaurants Business

Goods and Services Tax (GST) Bill has been stirring storms and spewing debates over its impact on consumers as well as manufacturers. As per the final proposed GST Bill, a four-tier structure- 5%, 12%, 18% and 28% has been set, where tax will be levied at multiple rates ranging from 0 per cent to 28 per cent.
Essential items including food, which constitutes about half of the consumer inflation basket as well as major foodgrains have been exempted from the GST and will be taxed at zero rates.
The lowest slab of 5% tax will be applicable only on common use goods, while the highest slab tax of 28% will be levied on luxury goods.

Image result for multi tiered system GSt

While it was earlier said that the impact of GST seems to be neutral on the restaurant industry, with the tax on consumer goods coming down from 30% to the expected standard rate of 18% and the simplification of bills, it clearly seems to affect the restaurant industry in a positive manner.

With the outset of the GST, there is expected to be a commendable impact on the restaurant industry. Read on to find how GST is expected to affect your restaurant.

Impact of GST on Restaurant Food and Liquor Costs

The overall food cost of the restaurant kitchen is likely to decrease under the new GST regime.
Edible oil, tea, coffee and spices which are currently taxed 3%-9% will be dropped to 5% while goods taxed at 9-15 percent at present will be taxed at 12%. Items that presently fall in the 15-21 percent range will drop to 18%, thus affecting the overall food cost.

The proposed slab is steeper than the current tax rates with items of mass consumption such as foodgrains will be taxed at 5% as opposed to the current 6%, while processed food will be charged at 12% as opposed to the current 15%. Alcohol and aerated drinks that come under the Luxury category will also attract an additional cess along with the tax of 28%. Compared to the other restaurant formats such as casual dining on quick serving restaurants, pubs and restaurants serving liquor would be negatively affected, as the high cost of alcohol is likely to decrease bar sales.

Alcohol will be charged with a ‘Sin Tax’, which is a tax levied on goods and services that are harmful to health and the society.

Food cost, on an average, represents 25-40 percent of the restaurant cost which is followed by labor cost that represents about 25-35 percent.  There is no other cost in the restaurant cost structure as high as the food cost; hence, restaurants should aim at keeping their food cost between 28-35 percent of their total operating budget. Hence, a reduction the food cost is likely to benefit the hospitality industry.

Impact of GST on Restaurant Bills

The GST spells good news for the restaurants as the multiple taxes will be removed, resulting in reduced bills. Cheaper bills are sure to attract customers and would result in an overall increase in business.

A single tax-structured bill should save up to 10-15 percent on the overall bill.
Entertainment, luxury, and other service taxes in the hospitality industry are expected to attract a rate of 18% as against the existing 22%.

“The restaurant industry has been burdened with high and multiple taxations. NRAI has been advocating for reduction/simplification of the same. We welcome the Centre’s move for the introduction of this much-awaited reform.” said Riyaaz Amlani, president, National Restaurant Association of India.

A government-appointed panel for GST has proposed 18% as GST which is much lower than what the hospitality and luxury sectors currently face (more than 22%).
VAT, Service Tax, and Luxury Tax combine to go up to 20-27 percent. Under GST, the multiple taxes will come down to a single tax which is likely to be 18%.

While the GST bill proposes of boosting revenues and being economically friendly overall, the final tax rate agreed upon, along with two other bills- Central GST (CGST) and Integrated GST (IGST) related to GST, must be approved by the Parliament to kickstart the new indirect tax regime from April 2017. The GST next meeting has been postponed from 9-10th November to 24th-25th November. The preparation of the drafts of the Central GST, State GST, Inter-state GST, and Compensation Law IS expected to be completed by November 14-15. The draft laws will then be sent to the States, which will have one week to respond with any recommendations.