The GST rate charged by restaurants has been cut to a uniform 5 per cent
Highlights
- GST council cuts tax on eating out to uniform 5% from earlier 12% and 18%
- But tax credit also scrapped, says benefit wasn't passed to customers
- Restaurants say may need to raise prices on menu to make up for that
Eating out has become cheaper after the GST Council Meeting led by Finance Minister Arun Jaitley revised the rates of the new national tax yesterday. The GST rate charged by restaurants has been cut to a uniform 5 per cent now -- from the earlier 12 per cent or 18 per cent, depending on whether you ate at an air-conditioned place or a restaurant without one. Restaurants, however, won't get the benefit of input tax credit -- a feature of the new GST under which manufacturers and service providers can deduct the tax previously paid on the goods they purchased. Mr Jaitley announced the changes after a day-long meeting with state finance ministers on Friday.
Here's your 10-point cheat sheet on the revised GST rates:
Though the Federation of Hotel and Restaurant Associations of India has thanked the government, it had asked the Centre to slash the rate while keeping input tax credit intact, which has not happened. "We welcome the reduction in GST slab... However, the very concept of ITC (input tax credit) is central to GST, which is to prevent cascading of taxes," restaurateur and National Restaurant Association of India vice president Rahul Singh told news agency PTI.
Restaurants say since they will not get the benefit of input tax credit, they may have to raise menu prices to keep costs under control. Analysts also say it needs to be watched how restaurants price their food after input tax credit has been removed.
Restaurants within five-star hotels (room rent above Rs 7,500) and outdoor catering will, however, attract 18 per cent GST -- with input tax credit benefits, Mr Jaitley said.
One of the reasons Mr Jaitley gave for removing input tax credit for some restaurants is that they have not been passing on the benefit to customers. Analysts say removing input tax credit may not be an ideal policy move. "This decision seems to be based on the government's belief that the industry has not passed on the input credit benefit to customers," Pratik Jain, indirect tax partner at consultancy firm PwC India said.
The biggest pruning occurred in the highest tax slab of 28 per cent where the GST council said it has slashed rates on 178 of the more than 200 goods including chocolate, shampoo, shaving-cream, deodorant, toothpaste, aftershave lotion, shoe polish, chewing gum and nutritious drinks.
Sushil Modi, who heads a panel on the Goods and Services Tax Network in the council, said yesterday's changes will cost the exchequer around Rs 20,000 crore ($3.07 billion) in fiscal 2018.
West Bengal Finance Minister Amit Mitra said opposition parties had "fought and brought down the tax rates on different items but they (the government) did not agree totally and a few essential items are still in the higher slab of 28 per cent."
The "panic-stricken govt has no option but to concede demands for change" in the GST, former Union Finance Minister P Chidambaram tweeted yesterday.
"We will not allow BJP to impose a Gabbar Singh Tax on India. They cannot break the back of the small and medium businesses, crush the informal sector and destroy millions of jobs," tweeted Congress vice president Rahul Gandhi as the GST council met yesterday.
The Congress has alleged that the BJP government has timed the GST review with an eye on next month's crucial assembly elections in Gujarat, where the important voter group of small traders is upset with the new tax regime.
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