How GST effects on Restaurants and Food Services?

VISHAL SHAH/ April 11, 2017/ Features/ 0 comments

Goods and Services Tax (GST) is a new indirect tax regime which is gaining high popularity in the present days. A number of businesses have accomplished impact studies as well as the changes which are a prerequisite in the current systems for accommodating the new compliance model. We are trying to bring the analysis on the food and restaurant industry, an integral part of the life of human being. In this article, we will try to explain how the restaurant bill will be looking under GST, the owners, the implications for the consumer and of course, the entire industry.

In accordance with the India’s 2013 India Food Service Report by National Restaurant Association of India, the present size of food service industry in the country happens to be 2,47,680 crore. The size is projected to enhance to a rate of 11% which is almost 4,08,040 crore by the end of 2018. The growth of the middle class in India is adding fuel to the flame. The raised awareness of the western lifestyles, rapid urbanization, increase in the number of women who are joining the workforce along with higher disposable income are considered to be some of the integral factors which lead to a contribution towards the rise of the restaurant industry. Owing to this, a number of people are seen waiting outside the restaurants in queues during the weekend.

    Above mentioned figures appear to be promising. As the end consumer, we do not pay attention to the food bill in these restaurants. Most of us do not even know about the components which are included in the bill.

Influence on end consumers

If you revisit the food bill of the restaurant you went for dinner last week, you will be capable of finding service charge, Service Tax, and VAT (value-added tax) that adds over and over to the value of food. In accordance with the GST regime service, the VAT, as well as the TAX amount, will be summed into one singular price. However, you may still find service charge in the food bill which is presented by the restaurants.

If you go for a high-level comparison between the food bill of today and how it looked in the GST regime, you will be able to notice a substantial difference. If you assume that the standard price is 18% under GST, a consumer is likely to save a price of almost 55 rupees in a food bill of Rs. 2,200. If we assume that the application of VAT is 100% of the value with the abatement, this may vary in different states in accordance with the judgment of the high court. In addition to this, if you observe the effective price of tax under the current regime, it will be summing up to around 20.5% which will be reduced to 18%.

Influence on the business owners of restaurants

In a similar way, there are more reasons for restaurant owners to become excited about the regime. In accordance with the current tax regime, restaurant business owners are not left with any option for adjusting the output service tax liability along with the credit of input VAT on the goods which are consumed. However, according to this new tax regime, both the taxes will be added into GST. Hence, credits of input can be availed for adjusting against the output liability under the newly launched tax regime. This will be optimizing working capital of the restaurants to a considerable extent. Thus, end consumers will be expecting a better and improved quality of food as well as services.

This is how Pepper Touch helps the restaurateur in turning these challenges into opportunities there by paving way to grab the fruit of success.

If we assume that the restaurant owner has bought inputs worth Rs. 1500, the total amount which is payable to the tax authorities in accordance with the current tax regime is Rs. 233.50. However, in accordance with GST, net outflow from the pocket will be an amount of Rs. 126. Hence, the working capital will be increased to almost a price of Rs. 107.50.

Hence, it can be concluded in a fair way that GST will provide reasons to celebrate for restaurant owners as well as consumers under this new tax regime. You will have additional reasons for exploring new food joints in the neighborhood and pampering the taste buds.

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