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Restaurant sector to suffer due to hiked custom duty on imported ingredients

Wednesday, February 7, 2018, 19:00 Hrs  [IST]

According to a Business Standard report, one of the things that might get dearer as a direct impact of the Union Budget 2018 is dining out. Finance Minister Arun Jaitley hiked the customs duty on imported foodstuff and important ingredients to promote the Narendra Modi government's Make in India pitch. 

The Economic Times quoted disgruntled restauranteurs as saying that the hike will increase costs on the menu by up to 5% as they won't be able to absorb the double whammy of customs hike and GST. They also said the quality of food is bound to suffer as a big portion of ingredients is imported.

Unending problems

The restaurant sector has been dealing with various uncertainties since the last one year. This measure comes after the GST on restaurants was slashed to 5% from 18% earlier and scrapping of input tax credit under the new regime. As reported earlier, the industry was also hit hard by a ban on alcohol sale near highways last year that might have amounted to losses of INR 500 billion.

However, the Centre has nixed the restaurants' argument about input tax credit, saying the impact of input tax credit would not be more than 6% of the base price for large eateries which have franchises, and much lower at 2% for smaller ones.

Make in India

Finance Secretary Hasmukh Adhia was quoted by news agency PTI on Monday as saying, "First of all, it (import duty hike) is not for the collection of revenue because the import of these items are not too much and we are not getting too much of revenue. At the most, we will get something like INR 6,000-7,000 crore on account of extra import duty." He added that the increase in duty was intended to boost domestic manufacturing. However, it wasn't clear how much of the extra 'INR 60-70 billion' burden will fall on the restaurant sector.

Addressing a post-Budget interactive session organised by PHD Chamber of Commerce and Industry in New Delhi, Vanaja Sarna, Chairperson, Central Board of Excise and Customs (CBEC) said, "This move is not at all inflationary and it singularly aims at promoting 'Make in India' in items of huge mass needs."

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