If you have visited a restaurant or a café after the impact of GST you would have noticed that the bill looks different from how it looked earlier. GST has substituted almost 17 indirect taxes and 22 cesses. As per the National Restaurant Association of India 2013 the India’s Food Service Report, the current size of the Indian Food Service Industry is about Rs. 2,47,680 crores and is projected to grow to Rs. 4,08,040 Crores at the rate of 11% by 2018. The factors behind this rapid growth are urbanization, the increasing number of women joining the workforce and the growing awareness of western lifestyles which have contributed to the growth of the restaurant industry.
Understanding the Restaurant Bill
There are various components which are added above the value of food such as Service tax, Value Added Tax (VAT) and Service Charge. Before going further let’s understand the components of the bill first.
- Service Tax: This is a tax which is charged by the government for the services provided by the restaurant.
- Service Charge: This charge is not a tax, it is an income for the hotels. This is a charge which is applied to the restaurants on the consumers and not by the government. Whereas Service tax is not an income, it is a tax collected by the government from the customers.
- Value Added Tax (VAT): It is a tax which is charged on the food portion which is included in the bill.
However, rates under GST have been changed completely. Different rates are charged at different restaurants as per the service they provide;
- Non-AC roadside eateries will charge tax @12%.
- AC restaurants whether they serve alcohol or not they charge tax @18%.
- Non-AC restaurants which serve alcohol will charge tax @18%.
Direct Impact on the End Consumers
Under GST, service tax and Value Added Tax is subsumed under one tax. But you will still see some service charge during the round off the bill. Let’s understand with the help of an example on the impact of GST on the food bill.
If the value of food which is consumed = Rs. 2,000
Service charge @10% = Rs. 200
Service tax @5.6% = Rs. 123.2
VAT @14.5% = Rs. 319
The total amount payable will become Rs. 2642.2. This means the consumer was paying Rs. 2642 on his food bill which was for the value of Rs. 2,000 before the implementation of GST.
After the implementation of GST
Service charge @10% = Rs. 200
GST @18% (9% for Central Goods and Service Tax and 9% for State Goods and Service Tax) = Rs. 360.
As per GST consumer will be liable to pay only Rs. 2560
Hence, after the implementation of GST at the standard rate of 18% consumer will save around Rs. 82 on the food bill.
Impact of GST on the Restaurant Business Owners
The impact of GST is beneficial for the restaurant Business Owners. Earlier, under the Value Added Tax (VAT) regime restaurant Business Owners did not have any option to adjust the output service tax liability with the credit of input VAT on the goods consumed.
However, under Goods and Service Tax (GST) both these taxes have been subsumed into GST and thus credit of input is available for adjustment against any output liability, irrespective of goods and services.
Let’s understand this with the help of an example;
If the value of bill under the VAT regime is Rs. 5,000
The output tax liability will be calculated as per VAT @14.5% = Rs. 725
Service Tax @6% = Rs. 300
Hence the output tax liability will be the sum of VAT and service tax i.e. Rs. 1025
Input credit as per VAT ITC is Rs. 75
Now, the final output tax liability will be Rs. 950 which includes Rs. 650 as per VAT and Service Tax will remain same as there is no input tax credit i.e. Rs. 300
Under the GST regime, output tax liability will be calculated @18% = Rs. 900
Input tax liability will be same as it was under the GST regime i.e. Rs. 75
The final output tax liability will be Rs. 825
According to the above examples, the total amount which is payable to the tax authorities is Rs. 950 under the VAT regime and Rs. 835 under the GST regime. Hence, under GST net outflow from the pocket is less than the net outflow under VAT. This will help the restaurant business owner in enhancing the working capital.