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Eateries await GST breather

Friday, November 10, 2017, 14:00 Hrs  [IST]

As per a report in The Telegraph, a proposal to slash the GST on an air-conditioned (AC) restaurant to 12% from 18% may be approved at the ongoing apex GST Council meeting in Guwahati on Thursday and Friday. A cut in the tax, favoured by a group of ministers on the GST, will simplify the new indirect tax system. Officials said coupled to an input tax refund, the proposed cut means the AC restaurants will not pay any tax at the end of the day. Only restaurants without air conditioning and a bar attract a GST of 12%. All the other restaurants fall under the 18% bracket. Officials feel the facility of input tax credit should be withdrawn if the AC restaurants pay a lower tax.

However, the Federation of Hotels and Restaurants Association of India, which met GST Council members to lobby for the change on Thursday, say that would be a negative for the sector. They feel it will be wrong to say that input credit on the GST paid for raw material and capital goods will mean near zero taxes. Before the rollout of the GST from July 1, a service tax of 15% was levied on 40% of the food bill at restaurants, which worked out to a 6% tax on the total food bill.

Besides this, states used to levy their own value added tax. The GST Council had worked out a higher rate for restaurants, arguing that they would get input credit set-offs which would mean the actual taxes paid would be far lower. However, analysts contend that this does not work out in reality. Food inputs, they point out, are taxed at zero rate and are supplied by small traders who do not fall within the GST ambit. “Besides, there is up to 50% mark-up in restaurant prices compared with raw material and capital input costs as the main cost for a restaurant is labour and land on which no GST is paid. Thus the input credit that a restaurant could get would always be a small fraction of the GST,” said Anjan Sengupta, an independent consultant who helps global hoteliers set up chains in the sub-continent.

Studies indicate that the restaurant sector saw a 30% dip in sales ever since a higher tax was levied on them. “We have decided to recommend to the GST Council to cut the rate of taxation on AC restaurants to 12% as it is for other restaurants,” said officials working with the panel.

However, officials said the rate was likely to remain 18% for AC restaurants in 5-star hotels. This was fixed at 28% earlier but was lowered to 18% later. The GST Council had earlier decided to bring about a distinction between AC and non-AC restaurants and tax the latter at a lower rate.

 
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