The government has decided to exclude review of the Goods and Services Tax (GST) system for restaurants after slashing the rates to five percent for all restaurants last month.
This decision has come at a time when some members of the National Restaurants Association of India (NRAI) disagreed with Centre's decision to withdraw input tax credit (ITC) and said that the menu prices may rise by six percent, due to the withdrawal of the benefit after GST was slashed to five percent.
The input tax credit is important to restaurants as they can claim an offset on the tax they pay on inputs (like raw materials) against the tax on the end products. It accounts for three-four percent of profit of a restaurant, according to estimates by restaurants
Hence, removing the input tax credit from the system, pushed restaurants to consider increasing the menu prices to adjust the tax they would be paying for buying raw materials.
Further, the restaurants which belong to newer chains, have also argued for the restoration of ITC. They blamed this withdrawal for an increase in the menu prices.
But the representatives of the NRAI are facing intense criticism from the government for increasing the menu prices.
The government officials said that only NRAI members are complaining, while all other major associations have welcomed the move as it reduces paperwork.
According to government sources, the Centre thinks that there was no question of a review for restaurants under GST as the extent of the price increase was unjustified.
Earlier, a senior official also told reporters that restaurants could face anti-profiteering action for not passing on the ITC benefit in July when GST was implemented.
Last month, the GST council had also slashed rates of various fast moving consumer goods (FMCG) products like washing powder, shampoo, chocolates and nutrition drinks, which started with an immediate effect.
Soon after that, the Union Cabinet also approved the creation of National Anti-profiteering Authority (NAA) under GST, to ensure that benefits of reduction in the new tax rates are passed on to the consumers.