What impact will GST have on the restaurant sector?

The GST model promises to bring about a better tax structure in the country but how will it impact the various sectors – still remains a concern.

Spending quality and fun time with family is a necessity in such a stressful life and going out to eat an integral part of the family outing plan. We surely enjoy when we go out to eat with family and friends but end up shelling out a lot of money on the same. It is not the price of the dish or delicacy that matters but what matters more is the umpteen types of taxes and charges that are levied on each and every food and beverage item. In line with the current tax structure – we pay almost 1/3^rd of the actual price of the food and beverages we consumed additionally, over and above the actual price of the food and drinks.

Since no clear draft or structure has been declared by the GST Council for restaurant sector yet there is only prima facie benefit of 0.5%-1.5% which can reduce the bill of eating out marginally.

As per the current system of taxation, the restaurant sector is burdened with high and multiple taxes, charges and cesses. On each and every food and beverages bill, the diner pays additional VAT as well as service tax and service charge, not to forget the cesses. The range of VAT rate is generally between 12.5%-14.5% as per the individual State VAT laws and abatement rate on service tax on restaurant services is 60%. Thus the effective tax rate comes to somewhere around 18.5%-20.5% that varies for different states.

The rate of service charge that we pay is totally at the discretion of the restaurant and there is no standard rule and rate to be followed for the same. Neither it is a statutory levy nor pre-decided by the government therefore it really adds more to the diner’s burden.

Whether the implementation of the GST tax structure will bring relief for the restaurant sector or not remains to be a topic of debate till date. It is expected that it will marginally lower the overall tax rate however till the time the final GST rates are announced for this particular sector, no conclusion can be derived out of it.

As per the proposed GST model which will have flat tax rates, at least the double taxation that prevails in the restaurant sector, as of now, will be taken care of. Moreover, it will also make it easy for the restaurants to take credit of input goods and services consumed during the rendering of restaurant services.

Also read- All About GST