As the historic goods and service tax (GST) was rolled out at midnight on 30th June, dining out became more expensive in many parts of India depending on the value added tax (VAT) charged by the state. For example, the pre-GST tax rate on a Domino’s pizza in Mumbai was 20.5% and about 10.9% in Bhopal. Now, the differential must be removed. Also in many places, some taxes (like VAT) were in the listed price. If you pull out your food bill from last week’s fine-dine experience, you will find service tax and value added tax (VAT) being added over and above the food value. Under the GST regime, service tax and VAT amount will be subsumed into one single rate. Earlier there were two components of the bill. One was VAT, a tax charged on the food portion of your bill and two, service tax, the tax charged on the services provided by the restaurant.
Below we have provided a comparison of how your food bill looks today as compared to how it will look in the GST regime:
Impact on customer:
Under the earlier 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 (GST) regime, both these taxes will get subsumed into GST and thus irrespective of goods and services, credit of input will be available for adjustment against the output liability.
As per the old system of taxation, the restaurant sector was burdened with multiple taxes, charges and cesses. On each and every food and beverages bill, the diner used to pay additional VAT as well as service tax, not to forget the cesses. The range of VAT rate varied between 12.5-14.5% as per the individual State VAT laws and abatement rate on service tax on restaurant services was 6%. Thus, the effective tax rate was somewhere around 18.5-20.5%.
When the GST came, the correct thing for restaurants to do is to remove the VAT and add GST to the reduced price. But that is not happening. They have simply slapped GST on the earlier listed price (including VAT that is supposed to have been subsumed into the new GST). Diners have complained from many places that prices are up by 10% or so. The revision by the restaurants comes even as officials claim that GST should, in fact, reduce the cost of eating out. But customers had a different experience on the weekends, as restaurants started charging more.
While the 2 bills below are before and after the GST was implemented, we can easily see the difference between the taxes applicable pre and post GST.
GST was implemented in order to reduce costs. However, small establishments which earlier charged service tax now charge GST at a higher rate. The pre and post GST bills below for the same order, show how the price for the consumer has increased.
Ganesh Shetty, president of the Pune Hoteliers’ Association, defended the increase in bills by pointing out that earlier, the taxes paid by the establishments were lower. “The maximum tax for non-AC restaurants was just 5% and for AC restaurants it was 11%,” he said, adding, “Now that GST has come into effect, the establishments are being forced to charge extra as the hike in tax is too large an amount to be absorbed by them.”
The GST implemented from 1 July 2017 with great hurry, is supposed to replace value-added tax (VAT), excise duty and Octroi. There are three types of GST, the Central GST (CGST), State GST (SGST) and Interstate GST (IGST). CGST and SGST have to be the same (each has to be 50% of the total tax. If the IGST is 18%, the CGST will be 9% and the SGST will be 9%.
The internet was flooded with bills of restaurants post GST implementation. Here are a few bills.
This is a bill from one of the most popular restaurants in Chennai showing the reduced number of taxes applicable.
Here are a few bills from Maharashtra. All of them have only CGST and SGST and have no service charge on them. All the bills also have the GST number of the restaurant in the bill.
A dhaba in Haryana too implemented the GST rates from 12pm onwards on 30 June 2017. While some restaurants did not apply new GST rates and had handwritten taxes scribbled on the bills, this dhaba was one of the first restaurants to issue a bill post the implementation of the GST.
GST was implemented in order to reduce costs. However, small establishments which earlier charged service tax now charge GST at a higher rate. The pre and post GST bills below for the same order, show how the price for the consumer has increased.
