GST driving customers away? TN restaurateurs claim 35pc losses under new tax regime

Prices have risen rapidly, as the taxes have soared from 2% under the previous VAT regime to 12% to 18% under GST.

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In Tamil Nadu, the GST regime is proving to be a continuing source of heartburn for restaurant owners and customers alike. With prices rising steeply under the new tax regime, customer footfalls have dropped drastically, and restaurants have faced losses of more than 35% in the month since GST was inaugurated, claim restaurateurs.

In the new GST regime, small restaurants with an annual turnover of less than Rs 50 lakh are taxed at a rate of 5%, non-air-conditioned restaurants pay a tax of 12%, and air-conditioned restaurants pay a tax of 18%.

According to M Ravi, the President of the Tamil Nadu Hotels Association, this represents a steep rise in tax rates from the earlier VAT regime. “Earlier there was a VAT of only 2% (for non-AC restaurants), but now the public has to pay 12% or 18% as GST.”

One of the major complaints against the new tax system is that it clubs even non-AC areas of air-conditioned restaurants under the 18% tax rate. “In restaurants that have both air-conditioned and non-air-conditioned facilities, people have to pay 18% even if they choose to eat in the non-air-conditioned area. This is a terrible thing. Why should customers have to pay 18% even if they are eating in a non-air-conditioned area?” asked Ravi.

Stating that the increase in tax rate has caused massive losses to restaurants, Ravi added that GST has driven many customers out of small restaurants to street side eateries. “We have submitted petitions to the Central government, and also met Amit Shah and the Finance Minister. They keep saying we will see but do not take any steps,” he said.

He added that it was unfair to apply uniform rates across cities of all tiers. “In Delhi, customers are paying 18%, and in a small town like Kanyakumari also customers are paying 18%. How can customers in small towns afford to eat a plate of Idly and pay a tax of 18%,” he asked.

Hotel associations have been demanding that the government reduce the GST rate to 5% for restaurants serving Indian food. “They can put a tax of 18% on star hotels and international food chains but not on local Indian food. They should only charge 5% for that. Indian food is eaten by common people three times a day, how can they afford such high rates?” asked M Ravi.

Protests against the new tax rates have been on since before GST came into effect. On May 30, more than 1.5 lakh restaurants had shut down in Tamil Nadu.