The anonymous sources familiar with the proceedings and development said that an issue was discussed to eliminate the distinction between air-conditioned and non-air-conditioned restaurants and both are to be put in the same tax rate of 12%. The meeting also came out with the point to charge 18% GST rate only on AC restaurants who are five stars and above rated. Currently, all the AC restaurants are put in the same category of 18% GST rate whether they are five-star and above rated restaurants or below rated except the Non-AC which are taxed at 12%.
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The comprehension behind putting all AC restaurants was an assumption that AC restaurants charge for both the food and facilities. An anonymous explained, “There is a consensus that there is no need for a distinction between AC and non-AC restaurants. It can only create confusion.”
Still, the final decision will only reside with GST council meeting chaired by the Finance Minister which is going to held on 9th November. One more ministerial meeting will take place on 29th October before the GST council meeting to discuss again the proposal before putting it in front of GST Council. Another anonymous person said, “There has been a convergence on views that the GST rates on restaurants should get lowered. In fact, there is a view that in this age, we should not differentiate between AC and non-AC restaurants.”
Prashant Deshpande, a partner at Deloitte India said on the same proposal, “It is a logical and rational move. In a value-added tax system, there is no need for distinction in the rate of tax for various classes of the same service as the same tax rate will yield the exchequer higher tax revenue wherever value addition is high.”
The next discussion of the panel is aimed to conclude the AC are liable to tax at 12% or not and the benefits of tax rebates should be allowed or not. Under new indirect tax system, the AC restaurants are liable to get so many rebates for the taxes they pay on items used in their business. But, consumers are not getting the benefits of the rebate and there are complaints from many consumers regarding the benefits they are not getting under GST. Albeit, the five-member panel will examine that whether it is possible to negate input tax credit under GST structure or not.
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The aim of the panel is to reconsider the various tax rates levied on different categories of restaurants, with the approach to systematic overturns or reduction in the rates. After GST implementation, the recommended GST rates on five stars and above were at 28%. But in June, after the discussion, the Council had lowered the rate to 18%.
Before the GST implementation, a service tax was 15% on 40% of the food bills, which was levied to 6% of a total food bill at restaurants. Apart from this, states used to levy their own VAT on different items.
