Rate of tax could come down to 12%
To give a boost to the hospitality sector and bring down the cost for consumers, the Goods and Services Tax Council could bring parity in rates between air-conditioned and non-air-conditioned restaurants at a uniform 12 %.
Separate GST for 5 star hotel
The council could also recommend a separate GST rate than the current 18 per cent for restaurants in 5 star hotels.
Eating out a necessity not luxury
Eating out is no longer a luxury. It is often a necessity, it is not form of entertainment. So, why have this distinction between AC and non-AC restaurants for taxes. Families like to spend time together at weekends and majorly these families belong to middle class income group.
Charging tax at higher rate by giving the reason that spending money at restaurant is luxury expenditure will not be justified for these families. Considering the same reason committee of State Finance Ministers are planning to bring down the tax rate to 12% with no ITC to restaurants.
Reason why post GST eating out has become expensive
Eating out has become very expensive for consumers post GST. Adding to the cost is restaurants are not passing the ITC benefits to the consumers which increases the cost of spending at restaurant. Tax on processed foods in the previous regime was 5% but in GST it has gone up to 12%. Also taxes on many inputs have gone up adding to the cost of in the form of higher menu prices to consumers.
Industry's reaction to the impact of such a move is mixed
The National Restaurant Association of India (NRAI) has expressed concerns about restaurants not being able to claim input tax credit if the GST rate is brought down to 12% from the current 18% tax rate.
Increase in cost by 7-10 % in the absence of ITC
In the absence of input tax credit, restaurants will not able to claim these tax rebates, resulting in an increase in their operational costs by 7-10 % when the rate of tax is brought down to 12%.
Situation in Earlier tax regime
In the earlier tax regime, restaurants were allowed an Input Tax Credit on things like food items, cutlery etc.
Restaurants not passing ITC benefits
Restaurants are not passing the ITC benefits to the consumes and taking this view committee members feel that to bring down the cost for consumers by reducing the tax rate to 12% and not allowing the ITC.
This means that if a restaurant was not passing the benefits of ITC to its customers now the cost of their customers will come down by 6%. But if certain restaurants were passing the benefits of ITC to its customers in this case their operational cost will go up by 7-10% which means that their customers can end up paying effective more 1-2% of cost as reduction of tax will bring down the effect of increase in cost.