Here’s How The GST Will Impact The Restaurant Business.

GST is currently the flavour of the season. This new tax overhaul drive will impact each and every business of the nation. The objective of GST is to get rid of corruption in the country and have transparency in the market and in its operations. The government claims that GST will achieve that and create a simple, more effective tax structure. However, it will be interesting to see how palatable GST is for the restaurant business! One thing is certain, that after its implementation on the 1st of July ’17, GST will replace at least 17 federal and state indirect taxes.


Restaurant bills before & after GST

The restaurant and hospitality sector was loaded with multiple taxes, cesses and charges due to the indirect tax regime. Restaurants have been charging service tax on 40% of its F&B bill or an effective rate of 6% along with an additional service charge apart from VAT @ 12.5% – 14.5%, as per the State VAT laws that vary from state to state.
This is how post-GST bill should look like:

With GST in the system, there will be uniformity – a market free from unnecessary additional taxes. Talking about the restaurant industry, its implications seem to have a mixed reaction.  

AC or Non-AC?

Now, a diner will have to pay a tax of 18% on the F&B bill in an air conditioned restaurant as against 10.6% charged (including VAT and service tax) in the indirect tax regime. Whereas, non air conditioned restaurants will charge 12% GST on its F&B bill.  

But one thing to be noted here is that if someone is visiting a restaurant with both AC & Non-AC setup and decides to sit in the Non-AC section, he will have to pay 18% GST. So it’s not all good news for the diner!

Online Delivery Hassles

Another trend that has been noticed is that small restaurants and vendors are pulling away from online delivery start-ups. The reason? E-commerce firms will have to deduct tax collected at source (TCS) when they make payments to restaurants and vendors using their platform. Also, these vendors will receive their payment after a TCS of 2%. Although Foodpanda has said that it has been talking to restaurants listed with it on how to manage this 2% deduction.

Bakers Get Lucky!

Bakers, on the other hand, are going to have it good under GST as the applicable GST will be lower than the present combined tax on processed food products which include bakery products.

Few on Cloud 9!

The obvious beneficiaries of the new tax structure are small restaurants and QSRs. Restaurants that have a turnover of 50 lakh INR or less can heave a sigh of relief as now they will go at the rate of 5% GST composition.

Another reason to cheer for Restaurant Owners!

Previously, restaurant owners had no choice but to adjust the output service tax liability with the credit of input VAT on goods consumed. Now, these have been replaced by GST. Irrespective of goods and services consumed, the credit input can be adjusted against the out liability easily.

Dining at 5-stars Has Become Costlier

However, with GST, 5-star, 7-star restaurants and hotels will be charged a luxury tax as high as 28%. This will lead to customers abstaining from dining out at high-end restaurant properties, hampering their sales.

Liquor prices remain untouched

The GST regime doesn’t include service of liquor. Hence, two separate set of transactions will have to be maintained, increasing the cost of compliance for pubs and eating joints that serve liquor as well.

Barring the initial glitches, we can safely say that GST, the new value adding tax regime will be a boon for both restaurant owners and customers. It will create a new and healthy business environment which the customers should find satisfactory. This will hopefully give impetus to the idea of eating out to foodies.

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  1. Jagheake
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