Impact of GST on Food Services & Restaurant Business
GST is here, and businesses are still trying to understand the changes required in their current systems to accommodate the new compliance model. On this note, we bring you our impact analysis on something which is very near and dear to us; or, rather to our stomachs –the restaurant and food industry.
Here we will try to explain how the restaurant bill will look under GST and what are its implications for the end consumers, the owners and the overall industry.
According to the National Restaurant Association of India’s 2013 India Food Service Report, the current size of the Indian food service industry is ₹2,47,680 crore and is projected to grow to ₹4,08,040 crore by 2018 at the rate of 11%. This growth is further fueled by the growth of the great Indian middle class. Rapid urbanization, growing awareness of western lifestyles, more women joining the workforce, and higher disposable income were some of the factors that contributed to the growth of the restaurant industry. As a result, we find ourselves waiting in queues in most of the restaurants during the weekend.
Indian Food Service Industry
As you can see above, the numbers look promising for the restaurant and food industry in the days following GST.
Understanding Your Restaurant Bill
As an end consumer, we hardly pay attention to our food bill in these restaurants and most of us are not even aware of the components included in it.
If you revisit your food bill from the pre-GST fine-dine experience, you’ll find Service Tax, Service Charge, VAT being added over and above the food value.
First, let us understand the components of the bill:
- VAT: This is the tax charged on the food portion of your bill.
- Service tax: This is the tax charged on the services provided by the restaurant. [To avoid unnecessary complications government had already bifurcated the service portion and food portion and charge taxes accordingly.]
- Service Charge: This is a charge applied by the restaurants and not by the government. THIS IS NOT A TAX. It should not be confused with service tax as this is an income to the hotels. Service tax is not an income and merely a tax collected from you and submitted to the government.
However, the rates under GST are vastly different than what you would find before the tax policy change. Let us look at these changed rates below.