What does GST mean to restaurant business?

Esakki | August 28 - 2017


The Indian government had kicked off GST (Good and Service Tax) in India on July 1, 2017. GST, a single tax system, has made epic impacts on various industries besides a lot of confusions and skepticism. As an effort to lessen the amount of corruption prevailing in the nation, GST is designed to capture the details of business transactions, thereby increasing government revenue. By improving the taxpayer compliance and widening the tax base, it is expected to bring buoyancy to the government revenue.

As a nondiscriminatory tax, GST’s impacts will be seen across verticals where hospitality industry is no exception. The rates of GST vary for restaurants and the like based on their turnover and tariffs. Despite several disadvantages, it has made a plethora of positive impacts on the restaurant industry as a way to ease the administration processes, bring clarity in billing, generate revenue, degrade illegality in every phase of the business, and so on. Besides the above-said ones, it has major impacts on restaurant industry (as does in other sectors) such as the elimination of cascading effects of various taxes, uniformity in tax law, ease of compliance, and business transparency that are discussed below in brief:

Elimination of Cascading

In the supply chain from manufacturers to retailers and to the end-user, and across state borders, GST eliminates the cascading effects of all the prevailing indirect taxes on the cost of goods and services by allowing for the impeccable flow of tax credit. In this indirect tax regime, at the every stage of value addition, GST will be collected and that will be considered and set off the tax, which has to be paid at the forthcoming stages of the supply chain; thereby, it reduces the cascading effects of taxes at the different stages of the transaction.

Uniform tax law

Rolling out of an indirect tax regime is to unify the country economically. Uniform tax rates and structure will subsume various local, state, and central taxes and levies. By removing the inter-state economic barriers, GST has created a common market base and brings every aspects and phase of business under a single roof (common tax law).

Easier compliance

GST gives ease of compliance. With the commencement of GST, it is expected that there would be a tremendous impact in the restaurant field. By broadening the tax base, GST has improved the compliance through uniform and common tax rates and procedures.

Business Transparency

Both buyers and manufacturers would be the beneficiaries of the transparency of the law and input tax credits benefits. Gross profit of the business would be computed automatically since all expenses and procurement are uploaded by which it makes the business more transparent.

GST is a synthesis of easier and better rules and regulations, and increased costs and compliance. The commencement of GST is an important milestone in the history of tax reform in India. It has eliminated multiple taxations, reduced cascading tax effects, and simplified the entire tax process. Although, it remains a big question mark whether the disadvantages of GST outweigh its benefits, especially in the case of food sector.