Drinking out is cheaper, but companies may raise prices
Eating out has become cheaper after India moved to a Goods and Services Tax (GST) regime on July 1, with customers paying 18% (even in air-conditioned restaurants), compared to the effective 20.1% they were paying previously.
But things aren’t so straightforward when it comes to drinking out. Liquor is outside the ambit of GST, and, as Karan Tanna, a Mumbai restaurateur and founder and CEO of Yellow Tie Hospitality, says, there is “some discrepancy and confusion on liquor.”
As he explains it, the only levy on liquor now is value-added tax (VAT) because GST is not applicable. This varies by state. In Maharashtra, for instance, it is 5%. With the service tax gone, liquor should get cheaper.
Still, this cheer will likely be short-lived.
Liquor companies are expected to raise prices. And restaurants may be forced to follow suit. While GST on their inputs may raise their production costs, they will be unable to claim any credit because sale and supply of alcohol is not within GST.
“The introduction of GST will affect the company negatively in the short term as it won’t get input credit and the cost is expected to go up 7-9%,” Roshini Sanah Jaiswal, promoter and chief restructuring officer at Jagatjit Industries Ltd, said in an email statement. The firm, based in Delhi and Punjab, is known for its Aristocrat brand of whiskies.
Restaurants and bars will have to raise liquor prices to account for this. They may have to raise them more because “input credit for services on the sale of liquor (in a restaurant) is not available (to them because liquor is outside the purview of GST),” said Rahul Singh, founder and CEO of The Beer Café, a national chain of beer bars.
Tax experts agree, saying that eventually drinking out in a restaurant will become more expensive. “When I sell liquor as a restaurant, this is a supply of food and liquor, and I will have to charge GST of 18%,” said Suresh Nandlal Rohira, partner at tax advisory firm Grant Thornton India LLP.