After much debate, the government of India finally rolled out the Goods and Services Tax (GST) on all products in the country in July this year to replace the central government-level taxes such as excise, service tax and customs duty, as well as state taxes such as VAT, CST, octroi and entry tax, and entertainment tax.
Seen as the biggest tax move since the country’s Independence, even before it was fully announced, speculation was rife in the market with businesses trying to evaluate its impact on their earnings. In the final roll-out, the government has kept a large number of items under the 18% tax slab while categorising 1,211 items under various tax slabs.
GST is a consumption-led tax and is collected at the point of consumption, that is, at the buyer and seller level in a supply chain. Thus, it takes off the burden from food manufacturers unlike earlier ones such as the excise duty. Bearing in mind that agriculture drives the economy, the government made amendments to empower the farmers.
Although prices of agricultural produce may rise because of GST, the elimination of octroi and other transport taxes will make distribution cheaper and swifter. Here is a look at how it has impacted the F&B industry:
0% Basics such as fresh meat, fish chicken, eggs, milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour, besan (gram flour), bread, hulled cereal grains, Palmyra jaggery (unrefined brown sugar) and salt (all types).
5% Items such as fish fillet, packaged food items, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, sago, kerosene, cashew nut, cashew nut in shell, raisin, ice and snow.
12% Frozen meat products, butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, fruit juices, packaged snacks, ayurvedic medicines, tooth powder, ketchup, sauces and so forth.
18% Biscuits (all categories), flavoured refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, mineral water, curry paste, mayonnaise and salad dressings, mixed condiments and mixed seasonings, among others.
28% Products such as chewing gums, molasses, chocolate not containing cocoa, waffles and wafers coated with chocolate, pan masala and aerated water.
GST is a consumption-led tax and is collected at the point of consumption, that is, at the buyer and seller level in a supply chain.
Although the 18% tax bracket came as a surprise initially to the food industry who demanded these be taxed at the lowest bracket of 5%, the processed food industry has welcomed the government’s decision as the uniform tax system now allows them to manufacture in one state and distribute seamlessly across the nation without any economic barriers or procedures, said Shreyansh Kocheri, senior analyst, Euromonitor International.
Close to 80 essential food items such as unbranded rice, unbranded food grains and eggs have been exempted from tax. The increase in taxes for all kinds of biscuits, butter, cheese and cooking fats is expected to shift consumer trends to other unbranded options, thus impacting the big players in these areas. It simultaneously opens a new market for healthier competitors, he added.
According to the National Restaurant Association of India’s 2013 India Food Service Report, the current size of the Indian foodservice industry stands at Rs2,47,680 crores (US$41.39 billion) and is projected to grow to Rs4,08,040 crores by 2018 at the rate of 11%. Led by rapid urbanisation, and changing lifestyles, the growth of the restaurant industry, especially in the cities, was inevitable.
Before GST, a typical restaurant bill included:
- VAT – Tax charged on the food portion of the bill.
- SERVICE TAX – Tax charged on the services provided by the restaurant. It is not an income for the restaurant.
- SERVICE CHARGE – This is a charge applied by the restaurants and not by the government. It is not a tax.
With GST, the whole process has become a lot more simple and transparent. An average non-air-conditioned (non-AC) eateries, including local delivery restaurants, that do not serve alcohol will charge tax at 12%, while non-AC eateries serving alcohol will charge 18%. Air-conditioned restaurants (with or without alcohol) will charge tax at 18%.
Thus, the Service Tax and VAT amounts are consolidated into a single GST. Service charge may continue to prevail. Not only does the consumer stand to save with this but the restaurant owners are smiling too.
Alcohol is, however, not included under GST and will be taxed