GST: Abolition of input credit spells trouble for new franchise restaurants

Amid the fuss on revision of eatery menus, in line with the new goods and services tax (GST) rate, the restaurant chain sector is staring at another disruption. Abolition of the input tax credit (ITC) facility has raised concern on growth and opening of new franchise outlets.Last month the government brought down that GST rate for restaurants to five per cent, from 18 per cent. However, removal of ITC has minimised the effective reduction in the tax rate. While, the debate so far has been on realignment in prices of food and beverages (F&B), the new norms also raise the effective rate of tax on fixed costs like royalties and franchise fees. While consumers are charged five per cent GST on food bills, the GST on royalty and franchise fee is 18 per cent. Without the ITC facility, says the National Restaurant Association of India (NRAI), its members would pay up to 2.7 per cent more. "This has impacted growth plans, as royalties and franchise fees go up significantly. We see an ...