Restaurants want GST Rate Cut, and Also Claim Input Tax Credit
Industry players say they will be forced to pass on the burden to consumers if this sop is taken away
New Delhi: The restaurant industry is hopeful of the GST Council accepting a ministerial panel’s recommendation to reduce the rate under the GST composition scheme to 1% and levy a uniform tax rate for the rest of the sector. While it expects these to help boost the sector and bring more players into the organised segment, the industry is unhappy about a suggestion to stop restaurants from claiming input tax credit.
Under the composition scheme, restaurants with a turnover of up to ₹ 1 crore currently need to pay a 5% GST. On Sunday, the Group of Ministers (GoM) recommended to reduce this rate, as well as bring down the levy on air-conditioned restaurants to 12% from 18%, keeping it in line with non-AC eateries.
While the industry welcomed these, it is of the view that the input tax credit issue could lead to higher consumer prices.
“We are hopeful of developments which will be positive for the sector. As of now, the recommendation on the input tax credit would be inflationary and have a cascading impact on prices. Despite the GST reduction to a flat 12%, if restaurants are not allowed to claim input tax credit, we will have no choice but to pass on the burden to consumers. As it is, it’s been a tough year with the highway liquor ban,” said Rahul Singh, vice president of the national restaurant association, which represents thousands of Indian, global restaurants brands in the country.
The Road Ahead
Singh, who founded The Beer Cafe, said this could also affect hiring in the sector by up to 20%, as higher operating costs would hurt their expansion plans.
The final decision on the recommendations is expected over the next fortnight.
As per the existing tax slabs, restaurants are allowed to claim credit on taxes paid on inputs, such as processed foods, as well as fixed operating costs like store rentals and on transportation. With the implementation of GST, companies said taxes on various inputs have gone up. Consumers may possibly have to shell out at least 10% more for eating out starting this winter — the steepest price hike by the restaurant industry this year — if the recommendation of disallowing claims on input tax credit is accepted, industry executives said.