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Little impact of GST rate cut on consumers as restaurants hike prices to offset denial of input tax credit

Popular restaurants and eateries have hiked menu prices, negating the impact of GST rate cut on consumers.

Edited by: India TV Business Desk, New Delhi [ Updated: November 17, 2017 10:11 IST ]
Many popular restaurants have increased menu prices while
Many popular restaurants have increased menu prices while others are contemplating the move.Photo:PTI

If you thought the massive rate cut announced by the GST Council on restaurants would result in lesser burden on your wallet, you may be wrong. Major restaurants and eateries, it is learnt, have increased the base price of popular products to counter the rate cut announced by the GST Council.

Several popular restaurants like Domino’s Pizza, McDonald’s and Starbucks have increased the price of their products, while many others are likely to follow suit starting next week, citing the government’s decision to withdraw the benefit of Input Tax Credit extended to restaurants.

The council at its 23rd meeting in Guwahati last week announced that restaurants, irrespective of their categorization as AC and non-AC would be levied GST at a rate of 5 per cent (except restaurants in starred hotels), down from the 18 per cent and 12 per cent charged previously.

Crucially, it also withdrew the benefit of Input Tax Credit extended to restaurants, something that all businesses can avail under the Goods and Services Tax regime, citing the failure on part of restaurants to pass on its benefits to the consumers via reduction in prices.

While restaurants had by and large welcomed the Council’s decision to cut GST rates, they had expressed concerns over the government’s decision on input tax credit, signaling that they would have to take measures to offset this loss.

Also Read: Restaurants overcharging you in guise of taxation? Here’s how to spot billing errors and avoid GST fraud

Social media accounts and media reports have pointed out that the GST rate cut has mad minimal impact on restaurant bills as the eateries have increased menu prices after the revised GST rates came into effect from Wednesday.

A short signature hot chocolate at Starbucks for instance costs Rs 170 instead of Rs 155 before. The amount a customer would shell out under the earlier GST rate would come to around Rs 28. The new rate however, pegged the GST at Rs 9 for the cup of coffee.

However, hiked prices mean there is trivial difference to the consumer as he would now have to shell out Rs 179 for his cup of coffee, including GST, instead of Rs 183 that he would have paid as per earlier rates. The difference in cost, had eateries not hiked their prices, would have been Rs 20.

The case is similar for Domino’s Pizza, Punjabi By Nature, McDonald’s as well.

"Since denial of Input Tax Credit (ITC) has led to an increase in the input cost, we have adjusted prices of a few items to only partially cover this increased cost," said a spokesperson for Jubilant Foodworks which operates Domino's and Dunkin' Donuts & More.

Little govt can do

While restaurants justify the price hike saying it is meant to cover their losses and that they have ensured that the net impact remains positive on consumers, the development subdues the hype over the government’s GST rate cut on restaurants.

Notably, on Thursday, the government announced the setting up of an anti-profiteering body to look into instances of businesses not passing on the benefits of the input tax credit to consumers, there is little that the government can do to counter this strategy adopted by restaurants.

Two reasons. First, the mandate of the National Anti-profiteering Authority (NAA) is to look into instances or complaints where ther eis illegal profiteering, or a fraud, with respect to businesses passing on the benefits of tax credit to consumers.

However, there is no authority that can find fault with restaurants increasing prices. This authority, at best, could have acted against restaurants before the government withdrew the benefits of input tax credit that restaurants enjoy.    

With the government having already placed restaurants outside the ambit of businesses that can avail of input tax credit, there is little that it can do now.

“Since we do not control prices, it (the hike) is a call that restaurants have to take after factoring in how competition behaves," Times Of India quoted a senior officer as saying.

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