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GST on restaurants reduced to 5% across categories without ITC

Composition scheme threshold increased to INR 2 cr

Friday, November 10, 2017, 22:08 Hrs  [IST]
By HBI Staff | New Delhi

The 23rd GST Council meeting concluded at Guwahati in Assam has decided to bring down the GST rates on all sorts of restaurants from the current 18% and 12% to 5%.  While the hotel and restaurant industry has been demanding uniform 12% tax incidence on restaurants of all categories, the government considering all sides has decided to give a big relief to the industry by rationalising the GST incidence at a uniform 5%. While giving this big relief to the industry, the GST Council has taken away the Input Tax Credit (ITC) extended earlier to the sector.

The Council after deliberations has decided to move 13 items from the 18% to 12% GST bracket, 6 items from 18% to 5%, 8 items from 12% to 5%, 6 items from 5% to nil. Announcing the decisions of the Council meet, the Finance Minister, Arun Jaitley has said that there has been a consensus to bring down the maximum tax incidence from the current 28% to 18% over a period of time taking into account the implications on the overall revenue collections.
The new rates will come into effect from November 15.

In an another major move to please the small enterprises and entrepreneurs, the GST Council has decided to increase the composition scheme threshold from the existing INR 1 cr to INR 2 cr.

The hotel and restaurant industry has widely welcomed the GST Councils decision to reduce the GST rate on restaurants and bring it at a uniform 5%. We are extremely thankful to the Government for making these much required changes in the GST regime. This will help restaurants across India rationalise tariffs, said Garish Oberoi, President, Federation of Hotel & Restaurant Associations of India (FHRAI). A delegation of FHRAI led by Oberoi was in Guwahati lobbying for the demands of the industry.

However, he expressed the concern that the decision to increase the threshold of composition scheme from INR 1 cr to INR 2 cr, will impact the businesses which work under GST as the scheme will boost further a parallel unregulated economy in the country.  

I feel that having lost input tax credit, restaurants have lost the benefit but customer has gained directly. But this the government has given benefit to customers directly, said SM Shervani, MD, Shervani Hospitality.

National Restaurant Association of India (NRAI), the apex body of organised restaurateurs in the country, which has been  lobbying for uniform GST for restaurants,  also expressed similar sentiments. “We welcome the reduction in GST slab from a very high 18% in an A/C restaurant to 5% without any distinction of the air-conditioning. This is certainly historic. However, the very concept of ITC is central to GST, which is to prevent cascading of taxes. Denying the ITC benefit goes against the very grain of GST and will push up the costs by 10% which will be passed on the menu price. So, effectively the consumer pocket will get a marginal benefit and not as it seems. This move is also retrograde to bringing in players in the organised segment. In fact, restaurants are like the "gate keepers" which have worked with suppliers to bring them into the formal economy,”  said Rahul  Singh,  Vice President, NRAI and Founder  & CEO, The Beer Café chain.

 Dilip Dattwni, President of  Hotel & Restaurant  Association of Western India (HRAWI) while welcoming the decision to reduce the GST rate applicable to restaurants at 5% , made his unhappiness clear for withdrawing the ITC benefits in the bargain.  “Denying  the ITC benefit on the grounds that we have not been passing on benefits is unfair.  The move to remove ITC amounts to double taxation and is inflationary. It also goes against every tenet of ease of doing business. We wish that the GST Council had considered that rent and interest attract 18% GST. However, overall we welcome the developments. We understand that something as revolutionary as GST will bring some disruptions in the initial stages. We just hope that going forward, Input Tax Credit will be restored.”


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