Pune: While the reduction in the Goods and Services Tax (GST) at restaurants to five per cent has brought joy to foodies, the reduction may not necessarily reflect in the bill. The reduction has certainly provided people a feel-good factor while eating out, but most have overlooked the fact that the benefit of Input Tax Credit (ITC) for restaurants has been withdrawn.
According to Sanjay Phadke from GST Suvidha Provider (GSP) Vayana Network, one needs to look at the total tax liability instead of just the output tax before inferring any price cuts. “Not getting ITC is generally not beneficial to anybody. While the output tax liability reduces with a tax cut, the input tax needs to be considered too. Thus, one cannot make a blanket statement that the cost of eating out will increase or decrease,” he added.
Elaborating further, Phadke said that if a restaurant is using only basic products, which are exempted under GST, there can be a reduction in prices.
“However, if a restaurant is using branded products, services like valet providers and others, there could be an increase in prices despite the lowering of GST. Earlier, they could claim credit against the input tax and so their tax liability was lower. However, now these larger chains of restaurants may feel the effect of lack of ITC, as the total tax liability goes up and they could be forced to increase the menu prices if they face losses,” she said.
Adding to this, Vinod Parmar from Vayana Network said they are not looking at a price reduction in the near future. “While the drop in the tax rate is better than what the market expected, price hike or price drop is unlikely at this point of time,” Parmar said.
He further added, “Mid-sized restaurants may make the first move and pass on the benefits to customers, larger restaurants and restaurant chains may not do so until there is a push from the top,” he added.
Speaking on the issue, President of Pune Restaurants and Hoteliers Association (PRAHA) Ganesh Shetty said that it is too premature to understand the impact of the reduction in the tax rate. “Nothing will be clear for the next few days at least. The exact impact of the withdrawal of ITC and the input cost will be clear after some time. We have implemented the reduced tax rate but whether or not we are making losses can be stated only after we study the impact on our tax liability. We will take two to three months to understand the implications of the reduction in output tax before deciding on increasing the menu prices. Revising the prices at the moment is not on the cards. But if need be, after studying the matter, a price revision can be undertaken,” he explained.
He further stated that if the government does live up to its promises and slashes the rates of commodities, there will be no need to increase the prices.
