COMMON TAX CODE

The Centre has slashed the GST rate for restaurants to 5% but here’s why your bill might stay high

With input tax credit withdrawn, many Delhi restaurants are looking at raising prices on their menu to make up for it.

On Friday, the Goods and Services Tax Council lowered the tax rate for restaurants (barring those located in luxury hotels) to 5%. The Council takes all major decisions regarding the Goods and Services Tax, which subsumes all Central and state levies and was introduced on July 1.

On the face of it, this decision comes as a relief to restaurant owners as well as customers who had complained of the previously high tax rates of 18% for restaurants with air-conditioning and 12% for those without. But many restaurant owners are not sure how this will affect their businesses while some have even indicated that the move may drive prices up instead of down.

This is because the government has also done away with input tax credit in the restaurant business. Under input tax credit, businesses can claim an offset on the tax they pay on inputs against the tax they pay to the government on final products. But after Friday’s decision, a restaurant is no longer entitled to claim input tax credit on the food items it uses as raw material.

The input tax credit accounts for 3%-4% of a restaurant’s profits, according to Federation of Hotels and Restaurants Association of India president Garish Oberoi. The federation, however, welcomed the lower tax rate.

Restaurants located in high-rent areas – which attract a high Goods and Services Tax rate of 18% on commercial rents – may be hit the hardest. “The move will hurt certain sections of the industry for sure but we cannot have all sections happy at the same time,” Oberoi said. “Five per cent is the lowest rate possible but input tax credit was important for some establishments, which will now perhaps struggle in the short term.”

Menu prices to rise?

A restaurant owner in Delhi, who did not want to be identified, said he was thinking about raising prices on his menu as a result of the government’s decision. He reasoned that customers would still be paying the same amount as the lower tax rate would balance out the higher food prices.

Calling the government’s move an opportunity for restaurants “to raise our rates on the menu and recover some of the losses we have been making”, he said, “The 5% rate for consumers is great. It allows legroom for restaurants who were being threatened by bigger chains or more organised establishments to now sell the same commodity at the same price without letting the customer feel its effect.”

No-invoice business

Many restaurant managers, however, are not convinced that a lower tax rate will make up for the loss of input tax credit.

“We are already a struggling industry and you decide to strangle it like this,” said Nitin Kapoor, an independent marketing consultant who manages four hotels in high-footfall areas in Delhi. He explained that “footfalls dropped by 30% compared to last year when GST came in”, and that profit margins had already been dealt a blow by earlier government decisions to reduce the number of bar licences and ban the serving of hookah. In addition, inputs such as employees’ salaries and electricity were not eligible for input tax credit.

Kapoor said the decision to do away with input tax credit altogether may encourage restaurants to do business without bills. This would be contrary to the new tax regime’s objective to bring about greater transparency in transactions.

“With input tax credit gone, whatever little incentive I had to buy from formally GST-registered suppliers has now vanished,” he said. “I will now buy in cash without bills because those things are useless to me and save my own taxes on my inputs too.”

Good for business

However, the rating agency ICRA expects the government’s decision to reduce dining out costs and bring in more customers.

“Restaurants were not passing on any benefit of input tax credit to consumers under GST,” the agency’s vice-president and sector head Pavethra Ponniah said. “The 12%-18% GST earlier had led to a hike in cost of dining for consumers. This revision in GST rates for restaurants is positive as it would bring down dining out cost, supporting footfalls and revenues at a time when most organised restaurants are struggling to grow demand.”

The Federation of Hotels and Restaurants Association of India – which had earlier lobbied for a 12% Goods and Services Tax rate for all categories of restaurants – agreed. The industry body had previously demanded that input tax credit be kept intact, but in light of the government’s decision to lower the tax rate to 5%, it has changed its position.

“We did not expect the government to reduce rates to such an extent that it would go from 18% to 5% in one go,” said its president, Garish Oberoi. “Though the input tax credit has gone away, we expect more customers to come in and the hotel industry to grow in general.”

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“My body instantly craves chai and samosa”

German expats talk about adapting to India, and the surprising similarities between the two cultures.

The cultural similarities between Germany and India are well known, especially with regards to the language. Linguists believe that Sanskrit and German share the same Indo-Germanic heritage of languages. A quick comparison indeed holds up theory - ratha in Sanskrit (chariot) is rad in German, aksha (axle) in Sanskrit is achse in German and so on. Germans have long held a fascination for Indology and Sanskrit. While Max Müller is still admired for his translation of ancient Indian scriptures, other German intellectuals such as Goethe, Herder and Schlegel were deeply influenced by Kalidasa. His poetry is said to have informed Goethe’s plays, and inspired Schlegel to eventually introduce formal Indology in Germany. Beyond the arts and academia, Indian influences even found their way into German fast food! Indians would recognise the famous German curry powder as a modification of the Indian masala mix. It’s most popular application is the currywurst - fried sausage covered in curried ketchup.

It is no wonder then that German travellers in India find a quite a lot in common between the two cultures, even today. Some, especially those who’ve settled here, even confess to Indian culture growing on them with time. Isabelle, like most travellers, first came to India to explore the country’s rich heritage. She returned the following year as an exchange student, and a couple of years later found herself working for an Indian consultancy firm. When asked what prompted her to stay on, Isabelle said, “I love the market dynamics here, working here is so much fun. Anywhere else would seem boring compared to India.” Having cofounded a company, she eventually realised her entrepreneurial dream here and now resides in Goa with her husband.

Isabelle says there are several aspects of life in India that remind her of home. “How we interact with our everyday life is similar in both Germany and India. Separate house slippers to wear at home, the celebration of food and festivals, the importance of friendship…” She feels Germany and India share the same spirit especially in terms of festivities. “We love food and we love celebrating food. There is an entire countdown to Christmas. Every day there is some dinner or get-together,” much like how Indians excitedly countdown to Navratri or Diwali. Franziska, who was born in India to German parents, adds that both the countries exhibit the same kind of passion for their favourite sport. “In India, they support cricket like anything while in Germany it would be football.”

Having lived in India for almost a decade, Isabelle has also noticed some broad similarities in the way children are brought up in the two countries. “We have a saying in South Germany ‘Schaffe Schaffe Hausle baue’ that loosely translates to ‘work, work, work and build a house’. I found that parents here have a similar outlook…to teach their children to work hard. They feel that they’ve fulfilled their duty only once the children have moved out or gotten married. Also, my mother never let me leave the house without a big breakfast. It’s the same here.” The importance given to the care of the family is one similarity that came up again and again in conversations with all German expats.

While most people wouldn’t draw parallels between German and Indian discipline (or lack thereof), Germans married to Indians have found a way to bridge the gap. Take for example, Ilka, who thinks that the famed differences of discipline between the two cultures actually works to her marital advantage. She sees the difference as Germans being highly planning-oriented; while Indians are more flexible in their approach. Ilka and her husband balance each other out in several ways. She says, like most Germans, she too tends to get stressed when her plans don’t work out, but her husband calms her down.

Consequently, Ilka feels India is “so full of life. The social life here is more happening; people smile at you, bond over food and are much more relaxed.” Isabelle, too, can attest to Indians’ friendliness. When asked about an Indian characteristic that makes her feel most at home, she quickly answers “humour.” “Whether it’s a taxi driver or someone I’m meeting professionally, I’ve learnt that it’s easy to lighten the mood here by just cracking a few jokes. Indians love to laugh,” she adds.

Indeed, these Germans-who-never-left as just diehard Indophiles are more Indian than you’d guess at first, having even developed some classic Indian skills with time. Ilka assures us that her husband can’t bargain as well as she does, and that she can even drape a saree on her own.

Isabelle, meanwhile, feels some amount of Indianness has seeped into her because “whenever its raining, my body instantly craves chai and samosa”.

Like the long-settled German expats in India, the German airline, Lufthansa, too has incorporated some quintessential aspects of Indian culture in its service. Recognising the centuries-old cultural affinity between the two countries, Lufthansa now provides a rich experience of Indian hospitality to all flyers on board its flights to and from India. You can expect a greeting of Namaste by an all-Indian crew, Indian food, and popular Indian in-flight entertainment options. And as the video shows, India’s culture and hospitality have been internalized by Lufthansa to the extent that they are More Indian Than You Think. To experience Lufthansa’s hospitality on your next trip abroad, click here.

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This article was produced by the Scroll marketing team on behalf of Lufthansa as part of their More Indian Than You Think initiative and not by the Scroll editorial team.