Covid-ravaged restaurant industry calls for tax holiday
NEW DELHI : Restaurants are asking for tax simplification, tax exemptions or reduced fees for excise services, among others, from the government as they struggle amid the coronavirus pandemic. According to the National Restaurant Association of India, the representative body for restaurants, the industry has seen its business halve to ₹2 trillion in FY21 from ₹4.23 trillion in FY20 as the pandemic forced nearly 30% of restaurants to close permanently.
In 2020, when the coronavirus pandemic first hit, the government offered unsecured loans of ₹3 lakh crore to MSMEs in general to improve working capital requirements and restaurants.
These loans had a one-year moratorium and could be repaid in four years.
But restaurateurs said they in no way benefited from the decision. “Moratoriums don’t work for us, instead what we need is a tax holiday or waiver in which we get relief from paying our sales taxes for a year,” said Ajit Shah, partner of White Panda Hospitality, which owns three restaurants in Delhi, including Kiko Ba and Tera Vita.
For at least four years, the industry has been asking for clarification regarding the GST credit on inputs. Simply put, when a restaurant purchases a good or product for ₹100 to cook, he pays the GST on that product directly to the government. This amount of GST varies from 5 to 28% on purchased inputs. He then charges 2.5% SGST and 2.5% GST on the food sold to the customer. But he does not receive any input credit for the goods he has purchased. Which industry players say is a competitive disadvantage because every other industry picks up on that.
“We are the only industry in India that does not recover input credits. Last month, we had a budget call with the finance minister, but as the restaurant industry does not fall under any particular ministry, it is a loser,” NRAI chairman Kabir Suri said.
The F&B sector has been one of the hardest hit despite being one of the fastest growing in the country and one of the biggest job providers, said Dawn Thomas, co-founder of VRO Hospitality, based in Bengaluru, which manages Hangover. and Mirages. “It is high time that the sector came under a dedicated ministry,” he added.
In FY22, quick-service restaurants (QSRs) and cloud kitchens did well, but fine-dining restaurants, pubs, bars and clubs were hit, he said. Restaurants like his have taken a hit on the balance sheet due to the GST issue and other operational issues such as curfews and closures causing major business disruptions. “As an industry, we need a tax holiday and don’t get moratoriums because ultimately we still have to pay back loans,” Thomas said.
Gauri Devidayal, co-founder and director of Food Matters India, which runs restaurants like The Table and Mag St Bread Co, in Mumbai, said it was a capital-intensive industry with big investments needed initially before the business is operational. “We are also charged 18-28% GST on most things. We pay excise fees up front at the start of the year. It takes up to a year for restaurants to open their businesses and it can become a huge burden,” she said.
The industry’s main demand is that the government consider allowing restaurants to choose to take an input credit on the GST, she said.
In the restaurant industry, licensing is done by each state, including fees paid to various state excise departments for different types of liquor licenses.
When the devastating second wave hit in April 2021, most restaurants had already paid hefty state excise license fees. These fees are collected in advance in March each year. In 2021, most restaurants were virtually closed for two months.
In a repeat of sorts, the Delhi government on Monday ordered restaurants closed amid spikes in daily covid cases, particularly of the Omicron variant. Others have also put strict restrictions in place, hurting business.
“The business operates by generating cash flow, so when there are these issues like schedule or capacity restrictions and heavy license fees, they affect us badly. The government just needs to be a little more forgiving to understand that restaurants are just not an indulgence but part of a social fabric and huge job generators,” added Devidayal.
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