Govt. May Lower GST For AC Restaurants To 12% From 18%; Will This Help?

Every since Goods and Services Tax (GST) regime took over starting from July, Air-conditioned restaurant owners have been complaining to the Govt. regarding their high tax slab of 18%.

Although input tax credits was available for them, it seems things weren’t working fine. On the other hand, Govt. feels that AC restaurant owners are not passing on the benefits of input tax credits to the customers.

Hence, in a way, both Govt. and AC restaurant owners are blaming one another, and as a result, restaurant business is facing a depression as sales have gone down by 20-40% in some cases.

There is some good news now: Govt. may soon relax GST tax slab for AC restaurants and make it 12%, down from 18% right now.

This will also mean that they will have to ditch their input tax credits.

Will this arrangement work?

GST Slab for Restaurants: The Bone Of Contention

In the GST regime, AC restaurants were placed in the 18% tax bracket with provision of claiming input tax benefits, and non-AC restaurants were placed at 12% tax bracket, with no provision of input tax credit.

Now, very soon, restaurants can be placed under 12% tax bracket, as per industry demands.

A Senior Govt. official justified this move by saying,

“It has been felt that the restaurants have not passed on the benefit of input tax credit to consumers,”

If this is done, then there will be two side-effects: a) Customers will now pay less for eating out in AC restaurants, as the tax would be lowered. b) AC Restaurants which claimed input tax credits won’t be able to do so now.

However, 5-star hotels and above would be continued to be placed under 18% tax bracket under GST; and restaurants and eateries with more than Rs 1 crore revenue can claim composition scheme, wherein flat 5% tax is charged.

Besides, if this happens, then there will be no distinction between AC and non-AC restaurants, as per GST rules.

AC Restaurant Business Down Due To GST?

Starting from July this year, which is the same month when GST was implemented pan-India, restaurant owners started complaining about high GST rates, and how their business has suffered as customers are not willing to pay higher rates.

On July 12th, ET carried a report wherein it was claimed that 25% restaurant business has wiped out, due to GST tax slabs.

This month, another report surfaced, wherein it was claimed that GST has wiped out 35% of restaurant business in Ahmedabad.

Narendra Somani, president of the Hotels and Restaurants Association said, “Restaurant business has certainly dipped after GST, even over weekends. Regular customers also don’t visit restaurants as often as they used to,”

A restaurant owner said,

“With 18% tax, bills have been rounded up and prices have risen by 20% at most restaurants. For instance, a thaali which earlier cost Rs 300 will now be billed at Rs 360. A family of four visiting four times a month now visits just once or twice a month,”

The same trend was reported from Surat, Baroda and other cities in Gujarat as well.

We will keep you updated as we receive more news on the issues of GST on restaurants.

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