AC eateries await breather

A panel set up by the GST Council is likely to slash the tax on food served at air-conditioned restaurants to 12 per cent from 18 per cent to bring some relief to the beleaguered sector.

By Jayanta Roy Chowdhury
  • Published 17.10.17
  •  

New Delhi: A panel set up by the GST Council is likely to slash the tax on food served at air-conditioned restaurants to 12 per cent from 18 per cent to bring some relief to the beleaguered sector.

Studies suggest that restaurants saw a 30 per cent dip in sales ever since a higher GST tax was levied on them.

"We have consequently decided to recommend to the GST Council to cut the rate of taxation on AC restaurants to 12 per cent as it is for other restaurants," said officials working with the panel.

However, the officials said the rate was likely to remain 18 per cent for AC restaurants in five-star hotels. This, too, had been fixed at 28 per cent earlier but was later lowered to 18 per cent on protests by hoteliers.

The GST Council had earlier decided to bring about a distinction between AC and non-AC restaurants and tax the latter at a lower rate. However, representations citing dip in sales by bodies such as the Hotels & Restaurants Association of India forced a rethink.

The GST Council is expected to meet in November and the panel set up by it is expected to finalise its recommendations by October 29.

Before the GST rollout from July, a service tax of 15 per cent was levied on 40 per cent of the food bills at restaurants, which worked out to 6 per cent of the total food bill. Besides this, states used to levy their own value-added tax.

The GST Council had suggested a higher rate for restaurants, arguing that they would get input credit.

However, analysts contend that this does not work out in reality. "Food inputs are taxed at zero rate and are supplied by small traders who do not fall within the GST ambit. The only input benefit a restaurant gets is in buying capital equipment such as freezers, chimneys etc, and these are one-time buys made once in a decade," said Anubrata Banerjee, an independent food and hotel sector consultant.