GST Rates Slashed But Input Tax Credit Withdrawal to Hamper Restaurants

While the entire country rejoiced when the GST Council decided to reduce the GST rates from 18% to 5% for all restaurants along with the Input Tax Credit withdrawal, there is a darker side of this provision that was very casually ignored. However, with the passage of time it was realised that this provision would increase the input cost of the restaurants, hence the restaurants, in turn, started increasing the prices of their menu items.

Restaurant’s Move To Cope Up With Input Tax Credit Withdrawal

With input tax credit withdrawal, the operating costs of the restaurants have increased. Hence the restaurants have weaved out a more strategically plan to deal with this provision. The restaurants have started raising the base menu prices. At a popular coffee chain where the GST has come down to around Rs 9 from Rs 28 for a cup of a coffee, this should ensure that the benefits are rolled down on the end consumers. However, since the company, in order to cope up with the rate reduction, has increased the base price of the product to approximately Rs 170 from Rs 155, so the end consumer will have to pay only Rs 4 less instead of a possible Rs 20 gain if the menu prices were not increased.

Brands like Starbucks, McDonald’s, and Dominos have already started increasing their base menu prices, while other brands like KFC will soon follow the leads within a few weeks. Jubilant Foodworks spokesperson went on to say, that denying the Input Tax Credit has increased the input cost of the restaurants, hence the restaurants have quite effectively increased the prices of a few items on their menu to cover a portion of this increased cost.

What The Government Has To Say On The Restaurant’s Move

The government has passed the provision so that the end consumers are spared of the extra expenses and so that the benefits of GST are passed on to them. Currently, it is evident that the benefits are not getting passed on to the consumer and hence the real reasons for which this provision was passed is not getting fulfilled. In such a situation, the government officials went on to say, that they have little to do if the restaurants increase the price of the menu items since the restaurants generally do so after analysing what the competitors are doing and the government does not have any control over the menu prices of the restaurants.

This shows that the government has swiftly washed off their hands of the issue. However, the government officials went on to say that the customer now will be aware of the tax they are paying, while they had no idea about it earlier when the input tax was being levied. Like all good news comes with a side effect, the retracting of the input tax has its negative impact as well!