GST rate cut: Eating out likely to turn cheaper; tax on AC restaurants may be reduced to 12%

The Group of Ministers (GoM) on Sunday recommended GST rate cut under the GST composition scheme for manufacturers and restaurants to 1 per cent. Currently manufacturers are charged GST at 2 per cent while restaurants have to fork out 5 per cent and traders pay 1 per cent as tax. A senior official confirmed that the GoM headed by Assam Finance Minister Himanta Biswa Sarma has also recommended that the tax rate for AC restaurants should be lowered to 12 per cent from 18 per cent at present.

This would make tax rate uniform for AC and non-AC restaurants that are not covered under the composition scheme. Besides, the GoM has suggested that GST for hotels which have room tariffs of more than Rs 7,500 per night should be cut to 18 per cent from the current level of 28 per cent. The hospitality sector has been complaining of high rates hitting their business. The GST on restaurants in fivestar and luxury hotels had been earlier reduced from 28 to 18 per cent, bringing it at par with standalone air-conditioned restaurants. Food & beverages constitute 30-40 per cent revenue for five-star hotels.

However, it remains to be seen whether these restaurants are also brought into the 12 per cent bracket. GST composition scheme is open for manufacturers, restaurants and traders whose turnover does not exceed Rs 1 crore. This threshold was earlier Rs 75 lakh and the GST Council had this month raised it to Rs 1 crore from October 1 so that more traders and manufacturers could benefit from this scheme which is easy to comply with as it does not require much paperwork. The fixed tax also has to be paid on a quarterly basis instead of monthly as is the case with others.
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With regard to traders, the GoM has suggested a twopronged approach for taxation under the scheme. It suggested that traders who want to exclude the sale proceeds of tax-free items from their turnover, can pay 1 per cent GST. However, those traders who pay tax on total turnover, the tax rate has been proposed at 0.5 per cent. The GoM also recommended allowing businesses which are engaged in inter-state sale to avail of the composition scheme, the official said.

At present such businesses are not allowed to opt for the simplified scheme. The government has drawn flak from the business community which has been complaining about filing GST returns as they are not familiar with digital processes. Some of these entities have never filed tax returns before. With several assembly elections around the corner, the government is keen that the economic reform, which is aimed at spurring growth, should not become a political liability.

Extending the ambit of the simpler GST composition scheme would help to smoothen ruffled feathers. Around 15 lakh businesses opted for composition scheme, which allows them to pay taxes at a concessional rate and makes compliance easy, under the Goods and Services Tax (GST) which rolled out from July 1. There are over 1 crore businesses registered under GST.

The GoM has also suggested that manufacturers engaged in job works can be allowed to opt for composition scheme, the official added. The GoM was set up earlier this month and was tasked with revisiting the tax structure of different categories of restaurants with the aim of rationalising or reducing the rates, apart from making composition scheme more attractive for businesses.
The other members of the GoM are Bihar Deputy Chief Minister Sushil Modi, Jammu and Kashmir Finance Minister Haseeb Drabu, Punjab Finance Minister Manpreet Singh Badal and Chhattisgarh Minister of Commercial Taxes Amar Agrawal.