Junk food, food grains, confectionery items to become cheaper under GST

Restaurants across the country complied with the lower goods and services tax (GST) rate of 5% after initial reluctance to do so, at least from some quarters. The new GST rates for a host of items from washing powders and razors to shampoo and watches.

Adarsh Shetty, president, Indian Hotel and Restaurant Association (AHAR) said “Almost all other associations have welcomed the move, arguing that it will not just benefit consumers but also make life simpler for restaurant owners, who do not have to comply with complicated filing requirements. It is very positive for everyone and there is no increase in prices.

Some members of the National Restaurants Association of India (NRAI), which largely represents upmarket chains, have been complaining about the government’s decision to withdraw input tax credit (ITC) and have argued that menu prices may rise by around 6% due to withdrawal of the benefit, which the trade body has said is a key characteristic of GST.

NRAI president Riyaaz Amlani said “Government’s decision was a step in the right direction although a source present in a closed-door meeting of some of the restaurant associations said some of the eateries were suggesting that prices on the ground will not change due to withdrawal of ITC. We are all on the same page and we welcome the decision,” told TOI, adding that the trade body will make a “logical case” for reintroduction of tax credits.”

For organised chains, the major concern is the tax that they pay on rent, which can add up to 20-25% of the annual expenditure. With a credit on 18% tax paid on rent, a part of the gains were available to restaurants by way of lower costs. It’s a different matter that they argued before the government that the overall benefit from ITC was only 1%, which the government believed added up to 6% a figure that now tallies with the calculation being dished out by some of the chains.

Rating agency ICRA welcomed the decision to levy 5 per cent GST on all restaurants, both air-conditioned and non-AC, saying the revision in rates is positive and will bring down the dining-out cost. Last week, the GST council lowered the tax rate of restaurants to a uniform 5 per cent from 12 per cent on non-AC restaurants and 18 per cent on air-conditioned ones.

ICRA Vice President and Sector Head Pavethra Ponniah said “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 organized restaurants are struggling to grow demand. 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. Restaurants were also not passing on any benefit of input tax credit to the consumers under GST.”

Currently, 12 per cent GST on food bill is levied in non-AC restaurants and 18 per cent 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 per cent 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 per cent GST but ITC is allowed for them. Those restaurants in hotels charging less than Rs 7,500 room tariff will charge 5 per cent GST but will not get ITC.

The GST Council has decided to cut tax rate for restaurants to 5 percent without Input Tax Credit. The new tax rate would be applicable to both AC and non-AC restaurants, except those in five-star hotels. Outdoor catering rate has been fixed at 18 per cent.

Hotels with Rs 7,500 room rent have been fixed at 18 per cent with input tax credit. Under the previous GST structure, it all boiled down to 12 per cent GST for non-AC restaurants and 18 per cent GST for AC restaurants. In case of five-star hotels, the charge was much more 28 per cent.

Under the previous rates if any part of a restaurant has an air conditioner, 18 per cent is charged as the GST. That also meant that takeaways from AC restaurants were levied with the same 18 per cent.

The GST Council also raised the threshold for the composition scheme. Under the composition scheme, traders are allowed to pay a fixed rate to avoid GST paperwork. Threshold for composition scheme was hiked to 1.5 crore.

West Bengal finance minister, Amit Mitra said “aggregate loss of revenue was around 60,000 crore for Centre and 30,000 crore for states in last 3 months”.