Will eating out become pocket friendly with the rollout of the Goods and Services tax regime? Will restaurant owners have a reason to rejoice? Will bills become more fathomable for customers? In BloombergQuint's special series, GST Countdown, we spoke to Anurag Katriar, CEO, de-Gustibus Hospitality of Indigo and Indigo Deli fame to gauge the level of preparedness of the service industry.
Here are edited excerpts from that conversation.
How prepared are your for GST? In your language, if I may ask, would you call it medium, medium rare, medium well?
I would say medium right now. I think all good players have registered now with the GST network and we are waiting for the tax rates to be announced. We are hoping the tax rates come out on May 18. It’s gonna be a great thing for us from an administrative perspective.
I understand in the service industry, in the restaurant business, there are a lot of registrations that you require; give me a before and after picture of how life’s going to be?
So today we have ‘n’ number of taxes, some will remain and lots of them will get amalgamated into one GST. So for a restaurant, we have Value Added Tax (VAT) which is a state levy, there is service tax, for pastries and chocolates, then there is central excise. So these three are getting amalgamated into one basket called GST. So administratively it is great. Now you will not have so many sub-sections in your invoices.
You told us offline that there was an incident where one day you realized you needed excise registration for your bakery products.
Yes, in fact the industry realized that they need registrations a couple of years back. Central excise said that your chocolates and pastries, at your outlets, are liable to be charged with central excise. Now this was a sudden bolt from the blue. Of course, then most of us registered yourselves, and paid whatever we had to.
Now this was more because there was no clarity on the law. Nobody was trying to break the law. It was an indirect tax, I was collecting, and then I was paying. I would have done it. Now I believe, with the GST coming in, this headache will go.
Now all you have to do is, whichever state you have a business in, you have to just get a service tax registration for it; right?
Now all that you have to do is, every state you have to do a GSTN registration and that’s about it.
So a current restaurant bill, in Mumbai, has VAT on food taxable at 13.5 percent, there is service tax of 5.6 percent, there is a Swaach Bharat cess of 0.2 percent, there is a Krishi Kalyan cess of 0.2 percent. So tell me, how will my bill read once GST comes in?
So the way now it’s going to read is, total, service charge, VAT on liquor, one GST amount and that’s it. And if the bill has any pastry and chocolate, one central excise as well.
So today effective rate comes up to 20.5 percent?
So today effective rate comes up to 20.5 percent, for non-central excisable goods, and I guess there is some 6 percent tax on that as well. So that makes it 26 percent. And we are hoping, and there is speculations as well, that it might get reduced to 18 percent.
Will that mean that the benefit will get passed on to the consumers?
Absolutely. We are not going to change our prices. So you will pay a little less.
And let me flag off, there is an anti-profiteering mechanism somewhere in the GST law which will make sure the benefits gets passed on to the consumers.
How is procurement going to work? Will the raw material cost come down for you, say like products in the 6 to 9 percent bracket, might come down to say 5 percent?
Agricultural goods are out of GST and are likely to be at 0 percent; so I believe that there could be some reduction in our overall procurement cost; how much, that I don’t know. Once the tax rates are defined, then we will know but we definitely hope there will be some reduction in the procurement cost.
And then that will translate into reduction of costs as well?
Yes, if my cost of sales goes down then I will pass it on to the consumers.
What costs are likely to go up for you?
My cost of capital goods is going to go up, because today if they are being charged at 14 percent, then that will go up to 18 percent.
Also, I think people in the QSR (quick service restaurant) segment i.e. food courts where there is no service tax involved, there is pure VAT, there the costs are going to go up because there is no differentiation. I am told the GST rates for QSR you may see an upward revision.
What is the current tax rate?
14 percent; I believe it will go to 18 percent. Of course that’s what we hear. Also if tomorrow the government decides for example the aerated drinks will be taken into luxury bracket, industry grapevine is that it might go to 28 percent; so your Pepsi and aerated drinks may cost you a little more.
Give me a sense of your processes right now, technology wise, how prepared are you for GST?
Right now, we have all registered on the GSTN, we have engaged the services of outside agency to migrate smoothly into GST. But it is still an unknown quantity, we don’t know what the whole thing will look like. We may face some difficulty but every change is going to have some kind of a negative impact, but they will all be short term in my view, that won’t be a long term problem.