• Notification Date: 10.02.2022
• Notification No: N/A

Government to consider Restaurant’s Demand for Higher GST Charges

According to the report of Revenue Secretary Tarun Bajaj, the government is considering the demands of the restaurants to charge them with a higher rate of goods and service tax (GST) and provide them with the benefits of tax credits on inputs.

At present, 5% GST is being imposed on the restaurants. The rate of GST is irrespective of whether the restaurants are air-conditioned or not. The restaurants are not being provided with any benefits of the input tax credit (ITC). The restaurants in the starred hotels that charge Rs.7,500 or more for their rooms for a day will be charged with 18% GST. These restaurants will not be provided with any input tax credits (ITC) benefits. 5% GST will be imposed upon those restaurants that charge less than Rs.7,500 for their rooms each day. No ITC benefits are allotted for these restaurants either.

Bajaj stated at a CII event that he has got several suggestions from the restaurant industry that they would prefer to revert to the higher rate of GST instead of 5% GST and avail the ITC benefits. He added that this suggestion is being considered by the government.

The Union Finance department and the Finance Ministers of the States would anonymously take a decision on this matter of tax rate reversal for the restaurant industry.

Goods and Service Tax (GST) was first introduced in India on July 1, 2017. At that time, GST was being charged at the rate of 12% on the non-AC restaurants. The air-conditioned restaurants were being charged at the rate of 18% GST. Both the categories of restaurants were offered input tax credit benefits to facilitate the payment of tax on the input with the final tax.

In November 2017, GST withdrew this ITC facility from the restaurant industry. The department has introduced a uniform tax structure for all kinds of restaurants without making any discrimination. The GST department felt that the restaurants were not facilitating the customers with the ITC benefits. But this year, there will be some amendments in the GST framework made by the government to bring stability. The new GST framework will enable the trade to know about the tax rates and they can plan their business according to their convenience.

A panel of state ministers has been set up by the GST Council to suggest possible changes in the GST framework. The panel, led by the Chief Minister of Karnataka, Basavaraj Bommai, is expected to submit the new report by the end of the current month. The panel has been focused on bringing necessary changes in the framework by cutting off the exemption list and by rectifying the inverted duty structure that would help in expanding the tax base.

According to Bajaj’s statement, there is a huge gap in RNR. The rate was initially 15.3, but at present, it has gone down to 11.6%. He further added that if the GST rates are brought down for all the items, there will be a huge deficiency of funds in the states. The amount of deficiency might be as high as Rs.1 lakh crore. There will be massive losses in the long run.

GST consists of four tax slabs at present. There are 5, 12, 18, and 28 per cent of GST rates. The essential items are free from GST or they are charged with a minimum rate of tax. The luxury items attract the highest rate of tax. There have been several appeals for merging the 12 and 18 per cent slab rates. Some of the items are also demanded to be withdrawn from the exemption list. This would help in balancing the instability caused due to slab rationalization of the revenues.