Introduction

The restaurant industry in India has been growing rapidly in recent years, with more than 1.5 million eating outlets and over 5 million people employed in the sector. The introduction of GST has had both positive and negative impacts on the industry, which we will explore in this article.

The Pre-GST Bill System

Before the implementation of GST, restaurants were subject to a complex system of multiple taxes, including service charge, Krishi Kalyan Cess (KKC), Swachh Bharat Cess (SBC), and value-added tax (VAT). These taxes often exceeded the 18% threshold set by the current GST system, resulting in higher costs for customers.

The Impact of GST on the Restaurant Industry

Under GST, customers are now subject to only 2-3 forms of taxes, including the state and Central Good Service Tax (GST + CGST), which typically amounts to 18%. One of the positive impacts of GST on the industry is the smooth flow of input tax credit (ITC), which allows restaurant owners to claim credit for taxes paid on their purchases of goods and services. This has led to a reduction in the overall cost of production and lower prices for customers.

Another positive impact of GST is the simplification of the tax system. Previously, restaurants were subject to a complex and fragmented system of multiple taxes at the central and state level. GST has replaced this with a single, unified tax system, making it easier for restaurant owners to understand and comply with tax laws.

However, there are also some <u>negative impacts of GST</u> on the industry. For example, restaurants are not able to claim ITC on the sale of alcoholic beverages, which can impact their profit margins. Additionally, the reverse charge mechanism requires restaurant owners to pay the full rate on all taxable supplies from unregistered persons, which can also impact their profit margins.

Furthermore, the composition scheme under GST has some limitations for restaurants with turnovers of 75 Lakh or below. Although these restaurants are eligible for the scheme, which requires them to pay a rate of 5% but will not be capable of collecting taxes or claiming input taxes, it may not provide significant benefits compared to the previous VAT regime.

Lastly, e-commerce firms are required to deduct tax collected at source (TCS) at a rate of 2% when they are making payments to vendors using their platform. This has had a significant impact on the working capital of smaller restaurants with minimal sales who rely heavily on online orders to survive. The TCS has added an extra burden to their finances, hindering their ability to participate in online business and expand their customer base.

Conclusion

In conclusion, the implementation of GST has had both positive and negative implications on the restaurant industry. On one hand, it has brought a more streamlined and efficient tax system, allowing for the smooth flow of input tax credit and reducing the overall cost for the customers. On the other hand, it has added more compliance requirements and financial burdens for restaurant owners, especially for those who operate across different states and rely heavily on online sales.

However, regardless of the challenges, restaurant owners are required to comply with the GST system. Outsourcing can help them with the process and alleviate some of the burdens associated with GST compliance. Dhanaay, a trusted financial services provider, offers GST registration, return filing, and other tax-related services for restaurant owners. With Dhanaay's expertise and support, restaurant owners can focus on other aspects of their business and ensure compliance with the GST system.

Overall, the implementation of GST in the restaurant industry is a work in progress, and further changes and improvements may be needed to address the challenges faced by restaurant owners. Nevertheless, with the support of trusted financial services providers and a willingness to adapt to the new system, the restaurant industry can continue to thrive and grow in India's rapidly expanding economy.