GST FAQs: All Your Questions About the GST and the Restaurant Business Answered!

GST being a trending concept has attracted a lot of confusions and scepticism from various industries, which includes the restaurant industry as well, and these queries have bombarded us, which in turn has prompted us to launch a full-fledged discussion on GST. This article covers the GST FAQs and would provide you with a pathway into the intricacies of the concept of GST. Read a detailed article on all you need to know about the GST and how it impacts the restaurant industry here.

GST FAQs and the Restaurant Industry

Read below to know about the most common GST FAQs and their answers.

Q1. What is GST and how will it affect the current position of the Food & Beverage industry?

Answer: GST is scheduled to be launched on the 1st of July,2017, and it is set to revolutionize the way we do our taxes. Goods & Services Tax is a comprehensive, multi-stage, destination-based tax that will be levied on every value addition. GST would affect all industries, which includes restaurant industry as well. The GST is going to affect both the suppliers, service providers, as well as the consumers of the Restaurant Industry.

Q2. How is the present system different from the GST?

Answer: It is an indisputable truth that the introduction of GST will affect the F&B and the Restaurant and Hospitality industry in a considerable manner, and will bring about wide changes in the present system that prevails in the industry.
Under the present system, if the total restaurant bill is Rs.100, then the service tax is charged at the rate of  15%, only on 40% of the total bill amount. This means the effective rate of service tax is 6%. Other than this, VAT is applicable to 60% of the bill amount.

After the GST comes into the picture, the entire amount shall be liable for GST. The GST rules require that there will be two different types of GST levied on each transaction – State GST and Central GST. The rates of these two taxes are not yet finalized. But remember that both of these taxes will be applicable to the entire bill amount.

The new GST regime promises the following-

• Elimination of Tax Cascading
• Uniform law and single rate
• Consistency and certainty in laws and their implementation
• Simplified compliances

Q3. What are the various taxes levied on the restaurants?

Answer: The Goods and Services Tax is a one tax regime that would get rid of all the other Federal and State Taxes.  A four-tier tax structure has been finalized by the GST Council where taxes will be levied at 5, 12, 18, and 28%.  The GST Council has agreed on different tax slabs for restaurants depending on their turnover and whether they are AC or Non-AC.
This means consumers would have to shell out more or less depending on whether they are visiting a restaurant with Air Conditioning or just a regular Non-AC food joint. The service tax rates at restaurants in 5-star, 7-star hotels will be much higher at 28 percent.

Here is a lowdown on the new rates:

• Restaurants with a turnover of less than Rs 75 lakh will be levied a tax rate of 5 percent.
• Non-AC restaurants will have a 12% tax rate.
• AC restaurants will have to shell out 18% tax.
• Also, five-star restaurants will be charged a luxury tax of 28 percent.
• Hotels, lodges with tariffs less than Rs 1,000 will be taxed at 5%.
• Hotel lodges with tariffs between Rs 1,000- Rs 2,500 will be charged 12% tax
• Hotel lodges with tariffs between Rs 2,500- Rs 5,000 will be charged 18% tax.

Q4. What is Input Tax Credit?

Answer: For taxes to be paid at the previous stage of the supply chain, Input Tax Credit is granted. This is done to ensure that the tax is levied only on the amount of value addition at each stage of the supply chain. For instance, a restaurant owner would get credits for the taxes paid on the raw materials purchased while computing the final indirect tax liability on the items that are collected from the consumers.

If your restaurant business has annual sales above Rs 20 lakh, then you are liable to pay the GST.

Q5. How would my restaurant benefit from the GST?

Answer: Though majorly overlooked, there are certain benefits of the GST as well, and it impacts the restaurant industry in a positive way as well.

• Consumers are finally free from having to haggle their brains calculating various taxes on the final bill. For customers, the GST has made dining out more pocket-friendly with a single transparent 18% charge as opposed to the earlier multiple 20-24% charges that were cumulatively levied.
• The payment system is going to be more effective and faster.
• Overall, trading on several commodities that was not regulated earlier has become more structured, for example, oilseeds, pulses, and cereals have been put under the light of a structured tax, and therefore can be accessed better in terms of both manufacture and consumption.
• There would be more transparency in business, as everything, from the purchase to the sale of the product or service would be documented.

Q6. What would be the negative impact of the GST on the Restaurant Industry?

Answer:  With the GST to be implemented from the 1st July 2017, there seems to be little time for restaurants and food businesses to prepare for the new tax system. Since there are different tax slabs for the different type of restaurants, some amount of confusion is bound to arise, at least in the initial days. For example, Non-AC restaurants would be charged at 12% GST, while the AC restaurants would be charged at 18% GST. The restaurants and establishments having both AC and Non-AC (outdoor seating, for example), would still be charged at 18%. Explaining this situation to the consumers can turn out to be quite difficult and hence lead to confusion.

The possibility of Increased Cost – Capital expenditure, (investing in capital for the business) could take a hike because of an increase in the procuring cost of capital goods. The high costs associated with raw materials may multiply into the bill thrown on the consumer’s lap at the end of the meal, which may discourage people from eating out.

Take the present taxes in the state of Maharashtra for example. The taxes on hotel rooms are currently 19% (Luxury Tax = 10% plus Service Tax= 9%) and those in the F&B segment are 18.5% (VAT= 12.5% plus Service tax= 6%). Compare these rates with the GST at flat 18%, you can see the benefits are not substantial, i.e., 1% and 0.5% savings for rooms and F&B respectively. Add the costs for new systems and accounting practices to be introduced due to the change in regulations, and the charges might surpass the benefit.

Increased cost affect competition from Asian Markets- Increased costs affect competition from Asian Markets, as  Indian GST rates should match with those of its other Asian counterparts but they are nowhere close as you can see below: Singapore = 7% Malaysia = 6% China = 11% Japan = 8% The wide gap affects our service providers and provides an unfair advantage to competitors. This alone could make a potential tourist reconsider their travel plans!

More than anything, there is still an extreme lack of clarity about the GST implementation and its execution.

Q7. How would GST affect you as a restaurant owner?

Answer:  Restaurant owners have more reason to cheer in the upcoming regime. Under the current tax regime, restaurant business owners do not get any option to adjust the output service tax liability with the credit of input VAT on goods consumed. However, under the new regime both these taxes will get subsumed into GST and thus irrespective of goods and services, the credit of input will be available for adjustment against the output liability. This will further optimize the working capital of these restaurants and in turn, consumers can expect a more superior quality of food and services.
Raw materials can be procured at subsidized rates from agriculturalists and farmers at a single stroke instead of owners having to negotiate taxes shall remain uniform throughout states thus making the competition even. The overall cost of procuring goods will thus decrease substantially, making the restaurant business a viable and easily manageable venture again.

Q.8 How would GST impact the restaurants selling alcoholic beverages?

Answer: Alcohol comes under the Excise and State Tax, and does not come under the GST. However, the alcoholic beverage and aerated drinks sector are expected to see better and more effective channels of distribution. States shall have administrative regulatory powers over the sale of liquor as the product will no longer be controlled by the Centre. However, in addition to this alcohol, on the whole, could take a hit as the tax on the final retail product will be high due to stringent control- this owing to a fall in demand in the consumer market, as well as an adverse impact on foreign investment in the hospitality sector.

Although foreign entrants may be slightly sceptical in investing in restaurants and hotels because of the increase in liquor costs, and overall this may have a damaging impact on the sales price, therefore placing the customer at a crossroads upon purchase of alcohol.

Thus we can fairly conclude that GST will bring reasons to rejoice for both consumers and restaurant owners under the new regime and we will have more reason to explore the new food joints in our neighbourhood. Hope this GST FAQ article cleared most of your apprehensions regarding GST and has made you ready to extract the best out of this new regime!

Update: According to the latest notification by the government, the GST rate for AC and Non-AC restaurants has been slashed down t0 5%. Read the full story here.