GST’s Impact on Restaurant Bills

By Registrationwala

10th June 2017


Not much time remains before India moves to a new form of indirect taxing – GST. The Goods and Services Tax bill is expected to impact the economy in unprecedented ways. And whenever there is an overhauling of this extent, various business players in the economy approach the change in different ways before coming up with a full-proof plan to accommodate the new regime.

The hospitality sector on a whole is well placed to reap huge benefits out of the proposed GST rates. Because the tax will be standardized with uniform tax rates and most importantly there will be far easier and better utilization of input tax credit. And naturally if the final cost to the end user gets reduced, more people will get drawn towards restaurants eventually putting the business into ascendancy. So let’s see how GST will impact one of the major entities – your stomach. To put things in perspective, we will examine the effects of GST on restaurant bills.

The National Restaurant Association of India conducted a Food Service in 2013 which found out that the current size of the Indian food service industry is ₹2,47,680 crore and is projected to grow to ₹4,08,040 crore by 2018 at the rate of 11%. The gigantic Indian middle class means that it will only get bigger with time.Rampant urban growth, attraction towards wester lifestyles, women taking up more jobs are some of the factors that have rapidly contributed towards the growth of the restaurant industry in India. It is a common sight to spot a queue outside a restaurant during peak hours, especially on weekends.

These figures are promising. However, the only malign is that not many people understand the intricacies of the final bill they end up paying at a restaurant. The final bill at any restaurant comes loaded with various taxes and thus it becomes all the more important to understand what impact GST is going to have on your pocket and stomach

A general food bill from a restaurant contains Service Tax, Service Charge, VAT, making the bill soar. Once the GST is implemented the service tax and VAT will be done away with. However, there are doubts that the service charge will still find a way to make it to the final bill. Let’s begin the final round of analysis to ascertain how the new and much-talked about GST bill will impact the final bill. Follows a comparative analysis to make things picture clear.

There is an assumption that the final GST rate for food bills will be finalized at 18 percent. Market experts feel that the implementation of GST will provide an edge to the sector and reduce costs for the consumers by reducing business transaction costs and also by harmonizing taxes.

For the hospitality industry, the abatement is fixed at 40 percent while for restaurants and eateries, there is 60% abatement, effectively making service tax to be charged at 6 percent apart from VAT that varies from 12 percent to 14.5 percent. The indirect tax means the end consumer ends up paying for way more than what he avails.

There is good news not only for the customers but for the restaurant owners as well. Currently the restaurant owners are option-less when it comes to adjusting the output service tax liability with the credit of input VAT on goods consumed. The new GST will ensure that both these get subsumed into one and thus irrespective of goods and services, credit of input could be adjusted against the output liability. This will definitely aid the working capital of the restaurants eventually providing the customers will better quality of foods and services.

Now that we have presented the first part of the argument, let’s have a look at the pros of GST on restaurants.

Easing the process of operating restaurants

Since there will be one uniform tax across the country, there will be no administrative issues for restaurants which are often accused of manipulating prices according to their whims and prices. There will definitely be reduction in procedures before the final amount is ascertained. On the whole, you do not have to squint into your bill after having great outing with friends. You can just scan through the bill, see the one rate of tax and proceed to pay.

Improvement is services

Whilst it may look like a silly argument in favour of GST but come to think of it and it is a valid one for sure. There are times when it becomes a little frustrating to wait for the bill when you have more important tasks at disposal. With GST coming into effect, the process will get relatively quick making things easy for one and all.

No bag of goodies ever came without some sachet of cons. GST too has some, we will now have a look at what all can go wrong when the country, in this case restaurants, adopt this system of taxation.

Technological complications

When the service tax was first introduced for Indian restaurants it led to a lot of complications. There were complains of mix-ups. However, the GST has clear guidelines for different industries on how they can go about filing taxes and manage accounts, things will definitely take time before once can safely infer that the all the intricacies of the new system has been adopted properly.

Costing issues

If GST ends up reducing cost of products, which it is likely to do so, there is a fear among the consumers that the restaurants might end up increasing the base price of products because they would want to recover technological and other costs.

In comparison to its Asian counterparts, India, despite the GST, will be imposing far more tax. So even in that case, there needs to be some improvement to see how the restaurant business in India competes with other big market players in Asia, if not at the global level.


GST will definitely be a fresh phenomenon and like every new thing it will come with its pros and cons. Some associations tried to lobby to keep the rates as low as 5 percent. However, the government does not seem to relent. The argument was that it would attract more crowds – both local and international. The restaurant business in India is growing rapidly and is unlikely to be affected immediately with the implementation of the GST. However, one can only hope for the best as the response from some of the business experts has been really positive.



GST’s Impact on Restaurant Bills