WITH the Goods and Services Tax (GST) rolling out, the hospitality sector is gearing up for the impact of the new regime on its bills. The GST is also expected to affect the cost of food delivery, which is likely to increase by about 5 per cent. To counter the increase in prices, while some restaurateurs are planning to drop the 10 per cent service charge they levy, five-star restaurants are coming up with innovative ways to minimise the effects.
As per the rates announced, while the tax imposed on the food bill is to drop marginally, the tax on aerated drinks, to increase from 24 per cent to 28 per cent, will eventually push up the bill. For air-conditioned restaurants, the tax has dropped from around 20 per cent to 18 per cent, and for non-AC restaurants, has hit 12 per cent from around 14 per cent.
While the cost of food will not be affected significantly, ordering food home will become more expensive. “Currently, most restaurants don’t add a tax to the delivery bill amount, or just add the VAT leaving the service tax out. But after the GST comes in, we will have to start adding the tax, which will increase the bill substantially. It will be cheaper to dine out,” said Meldon D Cunha, owner of Soul Fry, in Bandra west.
Restaurateurs said they are expecting a marginal drop in customers for the first couple of months before people get used to the new taxation. Kevin D Cunha, owner of The Local, a resto-bar in the Fort area, said, “There will be a drop of about 10-15 per cent for 2-3 months, after which it will stabilise. However, we will try to ensure that the gross amount people are currently paying is retained. We will remove the 10 per cent service charge and may increase the rate of food items a bit so that the rates balance out.”
Several other restaurateurs are expected to follow suit, after the Indian Hotels and Restaurants Association (AHAR) requested them to refrain from adding the service charge, which is supposed to be optional. Adarsh Shetty, president of AHAR said, “The service charge is at the discretion of the restaurant’s management. We have asked them to not add it to the bill amount, since it defeats the purpose of having a tax under a single head.”
Many others have opted to wait and watch. Riyaz Amlani, president of the National Restaurant Association of India and owner of restaurants like Saltwater, Smokehouse Deli and Social, a chain of pubs, said that restaurateurs will have to first examine the impact of GST on costs they will have to bear.
“Restaurants will monitor the situation for a few weeks and will have to understand the impact of the new tax on the input costs, like electricity and food. If the input cost goes up then the restaurants will have to pass on the taxes to the customers. But the initial idea is that dining out will become cheaper after GST is implemented,” he said.
The difference is the steepest for five-star restaurants, where the cost has increased from 18 per cent to 28 per cent. Hotels are planning to advise their clients on ways to reduce the burden of the tax. While lauding the simplified tax, Manish Vasudeva, Financial Controller, Radisson Blu Resort & Spa at Karjat, said, “To cut down the burden of GST and take advantage of the slab game, we will ask our clients to go for room deals only, without food, so they don’t come under the higher slab. They can have food separately, which is already at a lower slab.”
While the rate of food has been specified earlier, there continues to be ambiguity over the rate for sale of alcohol, which will be decided by the state. Many pub owners said they will continue to levy the 6 per cent service tax on alcohol. Most of them have decided to wait for the final decision and the impact of GST on distributors before making changes.
“Since our revenue is largely generated from alcohol, the GST in its current form will not affect our footfall much, unless people order aerated drinks. We will have to wait until there is more clarity on the taxation to be levied on liquor,” said Shruti Chaddha, a management member of Summer House in Lower Parel.
The steep increase in the case of five-star restaurants has miffed many. “If the tax amount will be a sizeable portion of the bill, there is a problem and I am not ready to spend that much,” said Harpreet Singh, a consultant.