Reduction in GST rate is more optics: Beer Cafe founder Rahul Singh
The internet, social media in particular, is going haywire over paying almost similar amount on their food bills despite the GST council's recent relaxation of rates from 18 per cent (for air-conditioned restaurants) and 12 per cent (for non-air-conditioned restaurants) to a flat rate of 5 per cent for all types of restaurants in the country. Several people posted images of their bills at popular restaurant chains showing that their food bills have hardly gone down despite cuts in tax rates. The 5 per cent GST rate came into force from November 15. Business Today's Manu Kaushik spoke to Rahul Singh, vice president of National Restaurant Association of India (and founder & CEO of The Beer Cafe) to understand the reasons behind the online outburst.
BT: What were the reasons that restaurants are not able to pass on the reduced tax rates to the consumers?
Singh: There are two parts to a restaurant bill: base rate and tax rate. Base rate is what goes into the menu. Menu price is a combination of cost and margins. There are other factors as well such as popularity of the restaurant brand or whether the restaurant wants to under-price its competitors restaurants don't have a fixed pricing policy. They are free to price their menu as they want. Nevertheless, the reason why bill charges have not gone down is because even though the GST rate is 5 per cent now, there's no input tax credit.
For instance, if a burger's base price is Rs 100. Earlier, the restaurants were charging Rs 18 GST on it. Within that Rs 18, the burger chain was paying Rs 6 and Rs 12 was paid by its vendors. So even this Rs 12 was part of its cost, the burger chain was not charging for it because it was getting input tax credit from the suppliers. Now, with 5 per cent GST rate, the input tax credit is gone. So the tax has become the cost.
Organized chains like Subway, McDonald's and others pay royalty (to the brand owner), and in return, they were getting input tax credit on those royalty payments. Similarly, for standalone restaurants who pay rent were getting input tax credit on their rent receipts. But all that is over under the new rules.
We expect every restaurant to increase the menu prices by 4-12 per cent depending on their cost structure.
BT: There are reports that high input tax credit being claimed by large restaurants led to the cut in the GST rate on restaurants. It means that the restaurants had themselves asked for lower GST rates. What is your demand from the government now?
Singh: Actually, we pleaded to the government for 12 per cent GST rates for everyone, including both air-conditioned and non-air-conditioned restaurants. We asked for input tax credit as well. We told them that there's no difference between air-conditioned and non-air-conditioned restaurants. In restaurants, air-conditioner is a necessity these days.
BT: When is this issue likely to get resolved?
Singh: The reduction in GST rate is more optics. We are asking the government to bring back input tax credit. The new GST rate is creating a bigger ruckus. The customers are not getting what the government had intended to do with reduced tax rate.