National Restaurant Association Of India (NRAI), the main restaurant industry body has written to the government, demanding that restaurants be given the option to choose a higher GST rate than now levied, but with the right to claim refund of the tax paid on inputs. Restaurants are now levied a 5% GST, but they can't claim the input tax credit against the tax they paid on raw materials and other expenses like rent. In a letter to the finance ministry, the National Restaurant Association of India, which represents more than 5 lakh restaurants including McDonald's and Domino's, said denial of the input tax credit had caused a "severe impact" on the sector and led to the closure of 20,000 outlets last fiscal year.
The association has suggested a dual GST structure for the industry - 12% for the restaurants that are ready to pay the higher rate but can claim the refund under the GST rule, and 5% for others. The letter, addressed to the revenue secretary, a copy of which ET has seen, said food service providers were sourcing close to half of their inputs from unregistered, non-tax paying suppliers to reduce their operating cost.
According to the letter, growth in the restaurant sector slowed to 2% in FY 2018-19. Most players have suspended expansion plans, which is directly impacting investments in the sector, it said. Besides (other levies), 18% GST paid on food service from aggregators such as Swiggy and Zomato has become an additional cost to restaurants. The government is losing annual GST revenue of Rs 2,937 crore due to denial of input tax credit, the letter added. GST rate on restaurants was slashed to 5% from 18% in November 2017. While levying of 18% allowed them to claim input tax credit, under the 5% rate, they can't do that.
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