The move to levy 12 per cent service tax that was so far applicable only to restaurants that served liquor will now be charged in all restaurants that have an air-conditioning. move will hit frequent restaurant-goers, especially the youth and the urban middle class
A popular Hindi film remembered for its catchy songs and its leading lady gyrating on the beach is also best recalled for actor Aamir Khan’s rakish character walking into a restaurant, asking for the fan to be switched on, and a visibly embarrassed steward replying that the “AC is on”.
The air-conditioned restaurant as the symbol of the urban middle class’s aspiration is still relevant. The urban middle class loves to eat out and not necessarily in cramped eating spaces with sweat dripping down their backs. Even if it is a no-frills meal or a plain cuppa, being served in an air-conditioned space is a desire most foster. But with Finance Minister P. Chidambaram bringing the “air-conditioned” eating places into the service tax net, the inflation-hit aam aadmi will have to keep a count on the eating-out expeditions.
The 12 per cent service tax that was so far applicable only to restaurants that served liquor will now be charged in all restaurants that have an air-conditioning.
“It is an outrageous concept. What does an air-conditioner symbolise? It is no longer a luxury, but a necessity. Clearly, the Finance Minister would know about eating out on a hot summer’s day without air conditioning. Unless he’s trying to give the roadside eateries a leg-up, this decision is ridiculous,” said Raj Manocha, who is self-employed and eats out regularly owing to his “hectic work schedule”.
The message from the Finance Minister has not gone down well with the youngsters for whom cafés with their staple of coffee and short eats are the only option. “It makes no sense to equate going out for coffee with a drink and dine-in a posh restaurant. Service tax will put an unnecessary burden on the youth, who do not have many options outside of their college canteens,” said Delhi University student Karan Singh.
Mr. Chidambaram’s pronouncement has also left the industry unhappy. President of the National Restaurant Association of India Samir Kuckreja feels this announcement is a “big disappointment” for the restaurant sector, which is one of the fastest growing segments of the service industry.
“Restaurants across various segments are frequented by a large base of our middle and upper class population, with many of them serving meals at very affordable prices. Now customers will have to pay an additional service tax at all restaurants. The high tax burden of VAT and service tax combined will now range between 17-25 per cent of the bill value,” he said.
Zorawar Kalra, managing director of Massive Restaurants, a chain that will shortly announce the opening of its multiple restaurants, described the move as “negative” that will “pull the industry backwards”.
“It will have a serious impact on the non-liquor serving restaurants and will prove detrimental to the industry as well as the middle class’ passion for eating out. With this 12 per cent hike in their bills, a lot of families will cut down on eating-out and even if they skip eating out just once a week, for the businesses it is just too many meals,” Mr. Kalra said.
He went on to question whether the tax will be applicable even to joints that do not offer dining-in. “What about places that have only take-away, will they have to introduce the tax as well, just because they have an air conditioning?” he questioned.
His views were echoed by Indraneel Roychowdhury, a corporate communications’ professional who perceives the move as one that will affect “social interaction”. “Eating out is already expensive, now before ordering-in even from a dhaba we’ll have to first ask whether the food has been cooked in an air-conditioned kitchen,” he quipped.