Eating Out To Get Cheaper? How Restaurants Should Be Taxed To Be Reviewed

New Delhi: Hinting that the government was open to revisiting the tax rate that people had to pay for eating out, Finance Minister Arun Jaitley on Friday announced that a group of finance ministers would take a complete relook at the way the restaurants should be taxed.

Mr Jaitley said there was an impression among members of the powerful Goods and Services Tax Council, or GST Council at the meeting that restaurants were not passing on the benefit of input credit that they received to the consumers.

The committee of finance ministers will revisit the taxation system for restaurants, Mr Jaitley announced.

Under the national tax regime rolled out from 1 July, customers had to pay 12 per cent GST on their bill in non-AC restaurants. The tax rate for air-conditioned restaurants and those with liquor licence was 18 per cent while five-star hotels charged 28 per cent GST.

Getting refunds on taxes paid on inputs that go into making any product is an integral part of the GST regime.

And restaurants were claiming these refunds too from the government, but weren't passing on this benefit to the consumers.

"Is there a need to reduce their tax rate or alternatively, should the tax rate be reduced but restaurants should not be allowed to claim input tax credit because they aren't passing on the benefit to the consumer would be looked into by the committee," Mr Jaitley explained.

In the months ahead of the GST launch, the consumer affairs ministry had launched a campaign against the service charge that a large number of restaurants levied and stressed that people could not be forced to pay this charge. Under the existing law, the only recourse for a customer is to file a case in a consumer court against restaurants which force them to pay the charge.