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Tuesday, August 8, 2017

Restaurant Industry- Whether GST leading to Profiteering


Goods and Service Tax (GST) has been implemented in India w.e.f 1st July 2017 with much fanfare. One of the key point as highlighted by Prime Minister of India is that it will result into reduction in the prices to the consumers. With the newspaper reports the dream was becoming true when the automobile industries came up with the substantial reduction in the prices of high end luxury car. Our Prime Minister in his talk "mann ki baat" referred to a letter from a poor person stating that due to implementation of GST in the country has resulted cost reduction to make it affordable to ordinary person. Yes it is true that the car prices of high end models have come down due to GST. Is it really true for daily needs of ordinary citizens. One of the daily need is the consumption of food items.

An advertisement of Jago Grahak Jago as appeared in the Times of India on 5th August 2017. A scanned copy of the advertisement titled "GST to make common man's plate affordable and full" is reproduced:


As can be seen in the advertisement, the rates of the food items are expected to remain at least at the same level if not reduced as lot of the items used in food items are either zer percent tax or at the same level what it was before GST. It also implied that the cost of manufacturing to the restaurant should either get reduced or should remain at the same level. As in my previous posts, I have brought out a fact about one of the restaurant Le-Chef at Sector 37 Faridabad who was providing an ordinary vegetable thalli for home delivery at Rs. 142 inclusive of VAT prior to implementation of GST and supplied the same thalli at Rs. 162/- inclusive of GST at composition scheme which as per GST Council is 5%. Therefore the increased cost of the food items was on the contrary to the objectives as highlighted by our Prime Minister.  The author could succeed in their menu card of both era i.e Pre-GST and Post-GST era and the scammed copies of the same are reproduced.

Pre- GST Menu Card:


Post- GST Menu Card:
 
The Restaurant Le Chef have opted for composition scheme of GST that means is liable to pay GST at the rate of 5%. Prior to the implementation of GST, the consumers were liable to the following taxes"
      
                 1. VAT: 12.5%
                 2. Service Tax: 15% on 40% of food value i.e 6% of the invoice which is not chargeable for home delivery orders.

In an ideal situation, the cost to the diners should get reduced by 13.5% in case of dining in the restaurant and there should be reduction by 7.5% in case of home delivery orders. Whereas on the contrary the prices for the consumers have gone up by as high as even 48% suggesting that the restaurant might be adapting to profiteering just misleading the consumers impact to be of GST. This increase is at a time when the Restaurant has come out with a menu card with 15% discount as it is the habit of any retailer/ business house to increase the prices, offer some discount for some period and later on withdraw the discount scheme. The following tables is based on the study of prices of some items selected from the menu card bringing out the facts substantiating the profiteering of the restaurant. GST Council and Department of Consumer Affairs (DCA) is expected and appealed to immediately step in to check profiteering business of the restaurant industry. A copy of this article is being mailed to the GST Council.

Dine-In Orders:



Home Delivery Orders: