Eating out may get cheaper as GST rate on restaurants slashed to 5%

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Eating out now will price you 5-6% cheaper as the GST Council slashed the tax on all restaurants on Friday, and coming to high-end hotels, from 18 percent to 5 percent. On the other hand, it did away with the advantage of input tax credit for restaurants with annual revenue of Rs 1 crore or more as they weren’t passing on the benefit of the lower tax rate to consumers. The Finance Minister Arun Jaitley said after the meeting that “Since they did not pass on the benefit they are not entitled to the benefit (any longer)”.

However, restaurants have condemned the move of government as they said that the menu prices will rise by 6 percent as the tax credits had been withdrawn. For an example, if a dish costs earlier Rs 500, now it will cost Rs 530 if eateries make a decision to pass on the extra burden on consumers. On the other hand, the tax burden will decline from Rs 90 (18 percent of 500) to Rs 26.50. The owner of a big restaurant explained that the bill will come down from Rs 590 to Rs 556.50, which is a decline of around 5.7 percent.

Hari Bhartia, Cochairman of Jubilant Foodworks, which runs Domino’s Pizza and Dunkin Donuts chains in India, said that “This will make eating out and ordering food at home more affordable for consumers and will lead to a significant growth in the organized restaurant segment”. While the cut in the tax was happily welcomed by the restaurateurs, they wanted the advantage of input credit tax to remain as well. Zorawar Kalra, founder and managing director of Massive Restaurants that runs popular outlets Masala Library, Farzi Cafe, and Pa Pa Ya, said that “Our margins were already constricted. Without input tax credit, it will become more expensive to run the restaurant. Overall, though, it is a good move for consumers”.

The National Restaurant Association of India vice-president and CEO of The Beer Café, Rahul Singh, said, “Denying the input tax credit benefit goes against the very grain of GST and will push up costs by 10 percent which will be added to the menu price. So, effectively the consumer will get a marginal benefit and not a big relief.”

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