You may know that even after the government slashed GST rate on eateries from 18% to 5%; the GST cut may not reflect in the restaurant bill. Some consumers took to social media to complain that despite the rate cut in GST; the total bill amount remains same as before. McDonald’s, Starbucks and Domino’s Pizza have already hiked the base price; while others like KFC are planning to follow suit by next week GST on restaurants.
GST on restaurants: No cut in restaurant bills even after GST slash Making people fool
Many restaurants are increasing menu prices, citing the government’s decision to eliminate credit for taxes paid on raw material and rent. As a result, the actual profit to the consumer may turn out to be minuscule, although the GST council decided to lessen the levy from 18% to 5% for all restaurants.
For example, GST has come down from Rs. 28 to approximately Rs. 9 for a cup of coffee at a popular coffee chain. But the company has raised the base price of the product to around Rs. 170 from Rs. 155. So, finally, the end consumer will have to spend only Rs. 4 less instead of a possible Rs. 20 gain, if the menu price was not raised.
One customer took this matter on Twitter. However, McDonald replied by saying that the government has brought down GST from 18% to 5%, but they removed the Input Tax Credit. And so their operating costs have increased. Further, McDonald replied that they structured the changes in such a manner that total amount paid by the customer remains the same. Tata Starbucks spokesperson said that the rollout of the change in GST structure included the elimination of ITC; which increased the costs for the industry. So they raised their base prices, which still provides the savings for their customers after tax.
Jubilant Foodworks spokesperson which operates Domino’s and Dunkin Donuts & More too said the same that the denial of ITC led to the increase in the input cost. They have adjusted prices of a few items only partly to cover this increased cost. For example, at Domino’s, the original price of Pizza Mania Onion has reduced to Rs. 61.95 from Rs. 69.62 and that of a Regular Margherita Pizza to Rs. 103.95 from Rs. 116.82.
On 10th November 2017 GST council decided to remove the benefit of Input Tax Credit for restaurants whose annual revenue is Rs. 1 crore or more as they were not passing on the advantage of lower tax incidence to customers.
However, the restaurant bodies had expressed displeasure by saying that they welcome the reduction in tax rates but without the benefit of input tax credit; input tax costs will remain high and so this would add to their burden.
Although the government declared an antiprofiteering body to act against those who do not carry on the benefits to customers; officials said that it was difficult to invoke the provisions against restaurants, raising prices. There was a case facing them when they did not pass on the benefits to the consumers after GST in July, but the officials did not act against them. Since they do not control prices, the hike in prices is a call that restaurants have to take after factoring in how competition runs.
GST on restaurants