With the Goods and Services Tax (GST) slashed for over 200 items, the decision that has foodies in Delhi elated is the reduced rates for AC restaurants, which could make eating out cheaper. But with no input tax credit, several experts said restaurateurs might end up increasing menu prices.
The initial 18% tax rates for air-conditioned restaurants and 12% for non air-conditioned restaurants were slashed to 5% GST on all food items from November 15. Value Added Tax (VAT) will continue to be charged for alcohol, which does not fall under GST.
Tanushree Sarkar, a consultant in Delhi, said while she used to eat out almost four times a week before the new tax regime, it had been reduced to once or twice a week because of the elevated taxes.
“It had just gotten very expensive. Even places you would think would be affordable ended up being costly. And menus don’t have tax inclusive rates printed. So if you go to a restaurant expecting that the bill would be around Rs 500 per person, at the end with the service charges and taxes it would come to be around Rs 700 per person,” she said.
People will not try to cheat on taxes now. It is so low, that it might be cheaper to pay it, than trying to bribe your way out of it,” he said.
However, since restaurants will not get back input tax credit (ITC), which makes taxes already paid on raw material deductible from the final tax amount, some experts said menu prices could be hiked by at least 10%.
“Denying the ITC benefit goes against the very grain of GST. It will push up the costs by 10%, which will be passed on the menu price. So, effectively, the consumer will get a marginal benefit,” said Rahul Singh, the founder and CEO of the Beer Cafe.