As the GST council has reduced the tax rates on restaurants from 12-18 percent to direct 5 percent, there is a happy vibe in the industry. But still, there are some strings attached to the expensive hotel bill as there are some industry experts along with the hotel owners who are not indicating any relaxation in the prices in the bill.
K Syama Raju, president of South India Hotels and Restaurant Association (SIHRA) cleared the doubts by saying that, “We welcome the reduction in tax rates. But without the benefit of input tax credit (ITC), input costs will remain high and we will have to bear the burden. We request the government to give us ITC benefit like any other business.”
Earlier the GST council applied higher 12 to 18 percent tax rates on the restaurants which were protested by many stakeholders and the industry itself. After the pressure from so many oppositions, finally, GST council in its 23rd meeting slashed the tax rates directly to 5 percent for both AC and non-AC restaurants but withdrew the benefits of inputs tax credit. This clause has created a hurdle in the actual price difference in the invoice issued in their hotels to the customers.
According to the provisions, input tax credit allows a business organization to make an adjustment in the tax payable on the transactions with the tax payable on input buying. But now the lack of ITC will land the restaurant into the whole burden of input cost which relates to the denial of price reduction of food cost from restaurant owners.
Recommended: Input Tax Credit Guide Under GST: Calculation with Examples
Sandeep Sehgal, a committee member of Hotel, Restaurant Association- Eastern India, and GST coordinator for All India Hoteliers Association, mentioned that “Our dilemma is whether to absorb the input cost or to pass it on to consumers by hiking prices of items on the menu. We will deliberate on the future course of action next week.”
An official from the Bangalore Hoteliers Association (BHA) also stated that “Most hoteliers prefer increasing the menu price to compensate for an additional cost, nullifying to that extent the GST rate cut. The government is to be blamed for denying us ITC benefit.”
Read Also: Are Restaurants Charging Correct GST Bills? Know and Save Money
There are a wide protest and opposition on the decision of ITC withdrawal as the industrial are pressing the point that it is against the philosophy of GST and providing ITC is very much needed. B T Manohar, chairman of state taxes committee at FKCCI and member of GST advisory committee, Karnataka government also mentioned that, “Denial of ITC goes against the philosophy of GST as its main objective is to tax only the value-added and ensure seamless tax credit along the chain of transaction, We will analyze the hoteliers’ representation and forward it to the GST Council.”
