Paying taxes while receiving a product or a service feels like a never-ending list of confusion. There have been multiple occasions when we find ourselves shocked to see the multiple taxes imposed on the amount, which is why government have introduced GST (Goods and Services Tax). Let’s see what GST has to offer, specially for Restaurant Industry.
The Goods and Services Tax Bill or GST Bill proposes a national Value added Tax to be implemented in India..
“Goods and Services Tax” would replace taxes levied by the central and state governments as it will be a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India.
Effect of GST on Restaurants
The hospitality and restaurant industry is plagued by multiple taxes (Service tax, VAT and luxury tax) in the current indirect tax regime. In case of restaurants on the F&B bills, service tax is applicable on 40% of the bill or effective rate of 5.8% apart from VAT @ 12 to 14.5%. In case of social functions (marriage, seminars etc.) the applicable service tax rate after 30% abatement is 10.15%. As input credit from central taxes cannot be set-off against VAT liability and vice-versa, this leads to cascading effect.
- Under GST, the single largest advantage would be uniformity of tax rates and applicability of single rate, better utilization of input credit and benefits to end user in terms of lower prices. India would be able to attract more tourists in comparison to neighboring countries and lead to enhanced revenues to the government. However the standard rate of GST @ 18% would be higher than prevailing rates.
- With growth in the organized food services industry (Mc Donald, KFC, Pizza delivery) and new age food booking and delivery startups (Swiggy, Tinyowl, Foodpanda, Zomato and the like) the market is worth 2.5 Lakh crore and would contribute significantly to the revenues of the country.
- Goods and Services Tax would be levied and collected at each stage of sale or purchase of goods or services based on the input tax credit method. This method allows GST-registered businesses to claim tax credit to the value of GST they paid on purchase of goods or services as part of their normal commercial activity.
- Taxable goods and services are not distinguished from one another and are taxed at a single rate in a supply chain till the goods or services reach the consumer. Administrative responsibility would generally rest with a single authority to levy tax on goods and services. Exports would be zero-rated and imports would be levied the same taxes as domestic goods and services adhering to the destination principle.
The introduction of Goods and Services Tax (GST) would be a significant step in the reform of indirect taxation in India. Amalgamating several Central and State taxes into a single tax would mitigate cascading or double taxation, facilitating a common national market.
The simplicity of the tax should lead to easier administration and enforcement. From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%, free movement of goods from one state to another without stopping at state borders for hours for payment of state tax or entry tax and reduction in paperwork to a large extent.