Welcoming the move by Goods and Services Tax (GST) Council to levy 5 percent tax rate on all restaurants, both air-conditioned and non-AC, the domestic rating agency, ICRA in its latest report has said that the revision in rates for all restaurants is positive as it would bring down the cost of dining out, supporting footfalls and revenues at a time when most organized restaurants are struggling to grow demand.
The rating agency has stated that last week, the GST council slashed the tax rate of restaurants to a uniform 5 percent from 12 percent on non-AC restaurants and 18 percent on air-conditioned ones. It also pointed out that all these restaurants were also given an input tax credit (ITC) benefit, a facility which sets off tax paid on inputs against the final tax to be paid by consumers. Adding further, it mentioned that these restaurants, however, did not pass on the ITC benefit to customers and so the ITC facility is being withdrawn and a uniform 5 percent tax is levied on all restaurants without the distinction of AC or non-AC.
The report further highlighted that restaurants in starred-hotels that charge Rs 7,500 or more per day room tariff will be levied 18 per cent GST but ITC is allowed for them. It also noted that those restaurants in hotels charging less than Rs 7,500 room tariff will charge 5 per cent GST but will not get ITC. Besides, it said that as most major inputs for restaurants like grains (not packaged), vegetables, poultry and seafood are exempt from GST, the input credit advantage available for restaurants was negligible. It added that restaurants were also not passing on any benefit of input tax credit to the consumers under GST.