Industry body National Restaurant Association of India (NRAI) has said that eating out will get more expensive if the government goes ahead with the proposal of reducing GST rates from 18% to 12% without input credit claims. As per recent media reports, the government is considering bringing down the GST rates to 12% from 18%. According to reports, the group of ministers is expected to ascertain if the restaurants are passing on the benefits of cost reduction under GST to their customers or not, and if they are not, they should be denied input tax credit claims. Under the GST regime implemented on July 1, 2017, air-conditioned restaurants pay 18% GST on food.
NRAI stated that under the current 18% tax rate, restaurants get to claim credits on the taxes they pay on various things like processed food, rent, electricity and transportation. However, if the GST rate is brought down to 12%, then in the absence of input tax credit, they will not able to claim these tax rebates, resulting in an increasing in their operational costs by 7% -10%. In the earlier tax regime, restaurants were allowed an input tax credit on things like food items, cutlery etc, NRAI stated.
“Under the earlier tax regime, the tax on processed food was at 5%, but now under GST, this has gone up to 12%. Taxes on many such inputs have gone up, so if we do not get an input tax credit, then our cost of running the restaurants will go up, leading to higher menu prices for customers”, Riyaaz Amlani, President of the National Restaurant Association of India said. NRAI stated that the best part about the GST scheme is complete pass- through of taxes via Input Tax Credit (ITC). ITC works in a way that all vendors and suppliers who may have earlier been in the unorganised sector are incentivised to come under the organised sector and file tax returns.
“Disallowing input tax credit will lead to higher operational costs for restaurants, ultimately leading to a rise in price of final products for consumers,” NRAI stated. NRAI said it hopes the proposal is not implemented in its current form, and that the industry’s views should be taken into consideration.