Restaurant bill still high as eateries hike prices on menu post 5% GST

There are a few snaps of before and after restaurant bills that have been posted on Twitter to show that some eateries have hiked their prices after the GST Council's decision came into force

The jury is still out on whether eating out has gotten cheaper after the GST Council's revision of the differential tax rates for restaurants -- from 12 per cent GST for non-AC eateries and 18 per cent for air-conditioned ones to a flat five per cent. 

It might seem counterintuitive that such a cut in the levy of taxes might not translate to much relief for consumers but it appears menu prices at restaurants have risen to offset the loss of input credit.  A few snaps of before and after restaurant bills have been posted on Twitter to show that some eateries have hiked their prices after the GST Council's decision came into force. 

According to a widely circulated snap of a McDonald's outlet bill, which could not be independently verified by Business Standard, the global burger chain has hiked the price of its regular latte to Rs 135, at least as on November 15, from the previous price of Rs 120. The end result is that the final cost to the customer remains the same regardless of whether the tax levy is 18 per cent or five per cent. 

It is not just large chains that seem to have hiked prices. At least one sweet shop in Delhi's Laxmi Nagar also upped its prices, in effect keeping the final cost to the customer more or less the same.

Others too complained that eateries were changing menu prices in wake of the change in the tax levy. 

Another Twitter user claimed that American fast food chain Subway had also hiked its prices on certain items.

As reported earlier, all restaurants, other than those located in high-end hotels charging up to Rs 7,500 per room, have uniformly come under the five per cent GST bracket from Wednesday. Restaurants in hotels with rooms above Rs 7,500 per day would continue to pay 18 per cent GST with the benefit of input credit. However, the facility of input tax credit for restaurants has been withdrawn as they had not passed on this benefit to consumers. 


 

The Economic Times too reported that some restaurants did indeed increase prices on menus to offset the aforementioned facility's loss, which restaurateurs claimed would increase their operating costs. 

One example cited by the financial daily was the capital's 'Punjabi by Nature' chain, where, according to the report, customers would have to pay more or less the same for particular items. According to the report, the price of the chef's special dal dish was hiked to Rs 445 from Rs 395. After including GST, the new bill came to Rs 467.25, about the same as the previous bill of Rs 466.10. Similarly,  Starbucks coffee chain has increased its short signature hot chocolate item's menu price to Rs 170 from Rs 155. Speaking to the financial daily, the global coffee chain claimed that it had 'adjusted' its prices, adding that customers could end up saving around Rs 5-8 on all products after the levy of taxes. 

Other eateries could follow suit, with the report saying that a majority of restaurants approached by it were in a wait-and-watch mode.

However, not all eateries have followed this course of action. The report said that Jubilant FoodWorks was claiming to have passed on the tax rate reduction benefits to customers at its Domino's Pizza and Dunkin' Donuts restaurants with effect Wednesday.

Another problem, albeit unrelated to any hike in menu prices, was that some outlets were still charging tax at the old rate of 18 per cent. 

Photo: @arpit_bhayani (Twitter)

Photo: @Nappingbookworm (Twitter)
 

The rate reduction should still lead to lower bills, mostly

However, it's not all doom and gloom for the foodies out there just yet. According to the ET report, tax experts are of the opinion that despite the hike in menu prices, the flat five per cent GST rate on eateries would still work out to be easier on your wallet when compared with the 18 per cent tax levied previously.

Speaking to the Financial Express, Abhishek Jain, Partner – Indirect Tax at EY, said "Most AC restaurants are likely to hike prices now that their input tax credit benefit has been taken off by the government. However, realistically speaking, given the competitive market, this hike is unlikely to translate into an amount higher than what consumers were paying under the 18 per cent GST regime."