NEW DELHI: The Centre is expected to back the recommendation of a panel of state finance ministers to reduce goods and services tax (GST) on restaurants, while withdrawing the facility of input tax credit, arguing that eateries have pocketed a 6% gain that should have accrued to consumers.
The panel of five state FMs had decided on Sunday to propose a cut in the levy from 18% to 12%, an issue that will be discussed at next month’s GST Council meeting. “The gain from input tax credit was 6%, which should have been passed on to consumers,” said a source.
But it has already set off intense lobbying by restaurants which are arguing that the move will force them to increase prices by 6-8% apart from weaning them away from tax-compliant vendors to the unorganised sector where cash is still the dominant mode of payment.
The National Restaurant Association of India as well as Ficci have petitioned the government backing a cut in the levy while demanding that input tax credit be retained.
National Restaurant Association of India) president Riyaaz Amlani said, “The net benefit that has accrued is just 1% in terms of cost saving on food. There is no input tax credit for bars, where cost has actually gone up. There is very little to pass on.”
NRAI’s calculations show that the price of a food product fell from Rs 100 before GST launch to a little over Rs 99 after the new levy that combines several taxes at the central and state level.
Government officials believe that with tax credit available on inputs and even furniture or rent paid by the restaurants, the price should have been around Rs 94.
Restaurateurs are questioning this calculation. “We are showing our calculations, where is their calculation?” asked an industry source. NRAI has estimated that despite the cut, a withdrawal of the tax credit will push up the price of the food product to over Rs 106.
An NRAI functionary said the government’s calculations were “misconceived” as all returns had not been filed. “How did the government come to know if all vendors have paid taxes or not? If they have not, then the restaurant will have to pay the tax on their behalf to claim credit and then settle it later,” said a businessman who runs a fast food chain. Amlani said nearly 35-40% input tax credit has been denied because vendors have not completed the registration and filing process. “If ITC is available, it will be a game changer for the industry,” he added.