After the GST Council slashed tax rates for hotels from 12% and 18% to a uniform 5%, customers are yet to get clarity on whether hotels that hiked menu prices in July reportedly to “accommodate GST”, will roll them back.
Such a rollback, however, is unlikely at most establishments, say industry insiders. This only means the benefit of the tax cut is unlikely to be passed on to the customers.
While most of the fine dining restaurants kept the menu prices unchanged, but imposed GST as per the norms additional to the bill, smaller restaurants increased menu prices instead. “Hotels rarely increase their menu prices, and more often than not, when they do, it wouldn’t be for just one factor like GST. Margins are fast decreasing in the business because of multiple factors like labour and real estate rent. So it is up to individual establishments to take a call based on their business scenarios,” said Vasudev Adiga, honorary president of Bruhat Bengaluru Hotels’ Association.
They could not afford a rebate
Two hoteliers who The Hindu spoke to said that their margins were hard-pressed already and they could not afford to reduce the recently increased menu rates.
“It’s not that the GST rate cut has come in isolation. The Input Tax Credit that we were eligible for has been scrapped, which means that restaurants will have to absorb that cost. How can we slash rates?,” a hotelier asked.
However, Chandrashekhar Hebbar, president of the association, said that it was imperative to transfer the benefit of the rate cut to customers. “We hope that happens. Some have indicated they would do so,” he said.
At fine dining restaurants where tax was imposed over the menu price, a patron’s bill will reduce as tax rates have come down from 28% to 5%.
But there have been concerns that such restaurants may increase their menu prices, to accommodate the repealing of Input Tax Credit, which hotels got as refund to offset the tax paid for raw materials with the final tax.
Sources, however, say that such a move seems unlikely.
Madhukar Shetty, of Swati Group of Hotels, said that the hotels had seen a fall in business by over 20% post GST.
“Since eating at our outlets turned pricey, price conscious customers shifted to smaller eateries, resulting in loss of volumes. The best we expect from GST rate cut is regaining the old volumes. The Input Tax Credit was available only for certain products like ghee, oil, milk products and crockery. This adds up to a margin of 3-4% only. We have decided to absorb this loss of margin, seeking volumes,” he explained.
