Restaurants may get a GST breather

In a boost to the hospitality sector, the Goods and Services Tax Council could bring parity in rates between air-conditioned and non-air-conditioned restaurants at a uniform 12 per cent.

A proposal to this effect is currently being finalised by a five-member committee of State Finance Ministers that was set up by the GST Council to look into the taxation structure of restaurants and also review the composition scheme for businesses.

The council could also recommend a separate GST rate than the current 18 per cent for restaurants in five-star hotels.

“Eating out is no longer a luxury. It is often a necessity, if not a form of entertainment. So, why have this distinction between AC and non-AC restaurants for taxes,” said a State Finance Minister, noting that it will also help reduce household drudgery for women.

“Eating out has become too expensive for most consumers post-GST. Most restaurants are also not passing the input tax credit,” said another source, adding that some disincentives could be introduced for restaurants that do not pass on tax benefits to customers.

The committee, led by Assam Finance Minister Himanta Biswa Sarma, is expected to meet on October 29, to meet industry representatives and also finalise its recommendations.

These will be put up before the GST Council, chaired by Finance Minister Arun Jaitley at its next meeting on November 10 in Guwahati.

Meanwhile, the committee is also expected to recommend further expansion of the composition scheme that allows small businesses to pay taxes and file returns on a quarterly basis for GST.

Businesses making inter-State supply of goods are likely to be included the scheme, said the source.

“The compliance burden is very high for GST and all efforts will be made to ensure that small companies and traders don’t have to face too many hassles,” said the source.

At present, small restaurants, manufacturers and traders are allowed to join the scheme.

The GST Council in its last meeting on October 6, had increased the threshold for the scheme to an annual turnover of up to ₹1 crore from the earlier ₹75 lakh.

However, the industry’s reaction to the impact of such a move is mixed. The National Restaurant Association of India (NRAI) has expressed concerns about restaurants not being able to claim input tax credit if the GST rate is brought down to 12 per cent from the current 18 per cent tax rate.

“ If the GST rate is brought down to 12 per cent, then in the absence of input tax credit, restaurants will not able to claim these tax rebates, resulting in an increase in their operational costs by 7-10 per cent. In fact, even in the earlier tax regime, restaurants were allowed an Input Tax Credit on things like food items, cutlery etc,” NRAI said.

“Under the earlier tax regime, the tax on processed food was at 5 per cent, but now under GST, this has gone up to 12 per cent. 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 added.

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