How GST Will Be Affecting The Restaurant Industry
The Goods and Services Tax (GST) has been quite the topic of discussion in the past few days. While most of us wonder as to how GST would affect us, the restaurant industry will be seeing a major transformation in taxation. To this INR 3,80,000 cr worth industry, as well as other sectors of service industry, GST was implemented on July 1, 2017, affecting both consumers as well as suppliers.
For starters, let’s discuss what is GST?
Earlier, a bill would display the total amount after levying the various taxes like the service tax, entertainment tax, cess etc. Many a times, it’s not clear to customers what exactly they are paying for. The reason being the same, on 3rd August 2016, the Bill to introduce GST was passed in Rajya Sabha, also known as the Upper House of the Parliament of India.
In other words, GST is a unified approach to indirect taxation also known as the ‘one nation-one tax policy’. It is an umbrella tax on the final produce, which will then be divided among the Centre and State as Central GST (CGST) and State GST (SGST).
Being a 4-tiered structure of 5%, 12%, 18% and 28%, the hospitality industry is allotted tax rates on the basis of the scale of their businesses.
Say ‘Aye’ for GST since:
- There’s good news for Small Restaurant Businesses:
If the restaurant’s yearly turnover is up to 50 lakhs, the taxes levied would be 5%, while on the other hand, Non AC restaurants will be taxed at 12% compared to the AC restaurant that would be charged an 18% tax rate. This propels customers to spend more at small restaurants in contrast to the 20%-24% taxes that were levied earlier.
As for restaurant owners, initially the option to adjust the output service tax liability was rather non-viable on the credit of input VAT on goods consumers. Now, both these taxes will get subsumed into GST and thus irrespective of goods and services, credit of input will be available for adjustment against the output liability. This will further optimize the working capital of these restaurants.
2. Faster and transparent calculation for customers
Let’s face it, the numerous taxes levied on the food and drinks bill was rather frustrating to calculate for customers. GST will come across as a single transparent charge at the end of the bill, against the earlier hefty 20–24% charges that were levied.
Restaurant bills will be less cluttered by the amount of indirect taxes associated with the food bill. Food costs, taxes on food, VAT and cesses will be subsumed under one GST and will reduce the taxes on the food bill by approx 9.5%.
3. Clarity for customers
For an end user, it is still difficult to differentiate between a VAT and an entertainment tax. You are only going to be paying for what you use. That’s right! A customer will only see a single charge for the products and service they consume.
4. Time Saving and Improved Quality
The elimination of a lot of entries from the accounts book in the name of various taxes means lesser time to process a transaction. This also means that the consumer gets their orders faster and fresher. Restaurant services become better and breezy!
We have reason to believe that GST will end harassment of traders and small businesses while integrating India into ‘one market with one tax rate’ policy, as our Honorable Prime Minister, Narendra Modi has termed the GST as a ‘good and simple tax’.
Some pitfalls or challenges that may occur are:
- On Five-star Restaurants
5-star restaurants will be charging a whopping 28% GST tax rate. This comes as a major blow to the high end players as it would deter the customers from indulging in these luxurious establishments.
2. Liquor and Beverages to become a luxury
Liquor is exempted from GST but VAT will be applicable for restaurants serving alcohol. Liquor is essentially imported from outside and falls under the State Tax and Excise. Aerated drinks come under the highest rate of tax of 28%, as they fall under the ambit of luxury goods. These products also attract a cess, therefore posing a disadvantage to these beverages. Currently, the effective tax cost comes between 20.5% to 26% . However, on the bright side, maybe this is going to help you save your money better every time you think about splurging on a Friday night!
3. On Food Delivery Websites
In the GST regime, e-commerce firms like Swiggy, Foodpanda will have to deduct tax collected at source (TCS) when they make payments to restaurants or vendors using their platform. This might hinder small restaurants with lower sales volume from going online.
“Besides, these vendors will receive their payment after a TCS of 2% (1% each of Central GST and State GST) which will cause disruption in their working capital supply,” said Anita Rastogi, Partner, indirect tax at tax advisory firm PwC. “Businesses under the threshold limit for GST will be forced to register for the GST network, simply for using e-commerce services. This is a tax burden that many may not want to take.”
However, restaurants will be able to claim input tax credit and get a refund for the TCS that they paid, but it will remain blocked till the refund arrives.
4. Competition from Asian Market
India’s F&B market has improved services and options, and is emerging as one preferred travel destination for the same reasons, especially in Asia. the Indian GST rates are nowhere close to its other Asian counterparts. “The government should realise that neighbouring countries like Myanmar, Thailand, Singapore, Indonesia and others levy taxes ranging from 5 to 10 %; we cannot afford to have these kind of complex and high GST. This is simply not viable. Tourists will skip India,” said Dilip Datwani, president, HRAWI. HRAWI says that the current slowdown is already hurting the sector and such taxes only aggravate matters.
It is evident that GST will make an impact, whether you are a consumer or a restaurateur. Right from the farmers and their produce, to manufacturers and finally the consumers, the demographic is going to visualize a steady upward move in the right direction. Certainly, prima facie unifying a tax is the way ahead for the F&B industry.
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