Friday, November 10, 2017

GST Rates for Restaurants - Analysis

GST rates for restaurants has been a hot topic over the last few months. The government is of the opinion that restaurants have not passed on GST benefits to customers and have used GST to increase their profits.

Here is a quick summary of who will gain and who will lose. Detailed analysis is provided below.

You can download the PDF file using the link below:

DOWNLOAD GST ANALYSIS PDF



Taxation at restaurants prior to GST rollout:

Prior to GST, restaurants were subject to VAT and Service Tax and they were able to adopt a model of their choice.
1)      Composite VAT Model: Restaurants paid a fixed percentage of sales as VAT. The percentage varied by state and ranged between 2% to 4% in general. Restaurants opting for the composite VAT model were NOT allowed to charge this amount on the bill to customers. i.e. if a product price was Rs.100, the customer would pay only Rs.100. The restaurant would need to pay 4% of this amount (i.e. Rs.4) as VAT. No input credits were allowed in this model
2)      VAT Extra model: Restaurants could opt for this and charge customer 14.5% VAT extra on the bill. They could also claim input credit for all purchases where VAT was charged.
3)      Service Tax: For all AC restaurants, irrespective of which VAT model they were on, service tax was applicable. This was 6% of the bill value and could be charged extra. Input credit was also allowed for this. This was applicable only for dine-in and not for takeaway and delivery (though there was some confusion around this).

Taxation post GST rollout Phase 1:

1)      Composite GST: All restaurants with annual turnover less than 75 lakhs could opt for the composite model (whether AC or non AC). GST was payable at 5% and this amount cannot be charged to customers on the bill. i.e. The model was similar to the composite VAT model above and effectively, the rate was pegged at a uniform 5% pan India.
2)      GST Extra model: In this model, restaurants could charge GST to customers on the bill. The percentage was 12% for non-AC restaurants and 18% for AC restaurants and was applicable uniformly across all sales channels – Dine-in, Takeaway and Delivery.

Here is where the confusion began:
1)      The government felt that restaurants were pocketing the gains from GST and were conveniently telling customers they need to pay extra (12%/18%) now because of GST and in some ways blaming the government for the price increase.
2)      The government was even more irked because the tax being collected by the government was now lesser than before.
3)      This “Customer pays more, Government gets less and the restaurants gain” situation did not sit well with the government prompting them to make changes and perhaps teach the restaurant industry a lesson.
4)      Unfortunately, point 1 above was true only for restaurants moving from a composite model to the GST model. This segment comprised primarily of value for money local restaurants and some QSR chains – we can assume that both of these put together would constitute over 80% of the industry. It would not be wrong to state that this segment did conveniently use GST as an excuse to charge customers more and pocket the gains. The alternate view on this is that these restaurants held off on raising prices this year (annual price increases are normally in the 5-10% range) because of GST

What the Government did?
1)      In a reactive mode, the government made a decision to lower the GST to 5% across all restaurants and disallow input credit.
2)     This change is more a populist move to appease the larger population that the government has taken steps to lower expenses for them. By increasing taxes to 12%/18% initially and lowering it to 5% now, it will seem that the government is helping the common man. The common man will still be shelling out 5% more than the pre-GST era for their regular dosas, rotis and meals.
3)      The folks most impacted by this move to disallow input credit are the professional restaurant chains who were on the VAT extra model (14.5% VAT chargeable extra to customers in their bills) and the ones who pay their taxes honestly. Now these restaurants would be able to charge only 5% extra to customers and not get input credit. They will have no choice but to increase prices by about 10% to offset the losses and maintain their net margins.

My previous post analyses the decision and long term impact for the industry. 


I have provided below the various scenarios for restaurants in the pre-GST era, in GST phase 1 and now in GST phase 2. 


You can download the PDF file using the link below:

DOWNLOAD GST ANALYSIS PDF







GST Changes for the Restaurant industry - Viewpoint


GST rates for restaurants has been a hot topic over the last few months. The government is of the opinion that restaurants have not passed on GST benefits to customers and have used GST to increase their profits. From the government's perspective they are correct. Restaurants (those who were earlier in the composite model - 80%+ of the industry I guess) have used GST as a way to charge customers more and have conveniently blamed the government for it. The alternate view on this is that most restaurants were waiting for GST before revising prices (which most restaurants do annually by about 5-10%) and have simply held off on raising prices because of the GST rollout. Thus in some ways by not increasing prices, the benefits have been passed on to the customers. In my opinion the real issue that irked the government was the fact that the restaurant industry by and large communicated to customers that the price increase is because of GST and they could do nothing about it. 

But the government's reaction to the situation is not something I agree with. Rolling back input credits is a reactionary populist move and is a big backward step, especially for this already cash heavy industry. By removing input credits, the government has shown immaturity and a poor understanding of the ground realities in the industry. The decision has been made without assessing the long-term implications. Or maybe the government wants things to function as before thus allowing a cash economy to thrive. Restaurants won’t complain, suppliers won’t complain, landlords won’t complain and now the consumers will also applaud the government that they have lowered costs for them (though they will actually be paying 5% more now than the pre-GST era). 

The decision creates a bigger problem in my opinion allowing the industry to once again gravitate towards cash collections and payments. Restaurants can show lesser sales and pay lower GST, pay off suppliers and landlords in cash without bills thus lowering costs. Landlords and suppliers are happy to do this as they don’t need to pay GST or can pay lower GST. This also lowers their income tax pay-outs as they can show lesser income now. Landlords, suppliers and restaurateurs can play with cash again like before - Their good days are back. The government has in some ways just given them a 5% bonus to play with. 

The GST rollout was a great opportunity for the government to push the fragmented restaurant industry and the supporting eco-system to move away from cash transactions, become more professional, tax compliant and gravitate towards digital payments.

To put this in context it is important to understand the key taxation related issue in the restaurant industry and the supporting eco-system: 

Lower Sales Reporting by restaurants (by conveniently siphoning off cash collections), thus resulting in lower GST and lower income taxes payable to the government. 

There are 4 big motivations for the restaurant industry to siphon off cash collections from sales:
1) Lower input costs: Suppliers are more than happy to offer products for cash (with no tax). For small suppliers, cash is a more convenient way of doing business and they don't need to bother about tax filings. It is also a way for them to compete better with larger/professional suppliers, who charge taxes.
2) Rental Payments: The biggest incentive to deal in cash is for landlords and they are very happy to take a large portion of their rental payments in cash. Cash payments are also a great way for them to reduce income taxes. They can also ask the restaurateurs to shell out more rent in lieu of the GST not charged to them (e.g. 18% GST gain split between the landlord and the restaurateur).  
3) Staff Salaries: If restaurants officially employ more than 10 people, they need to register for ESI and when the number crosses 20, PF becomes mandatory. They also need to pay annual statutory bonus, leave wages and double salary for working on holidays (NFH - National Festivals & Holidays). Both ESI & PF, involve deductions from employee salaries and all of the above implies higher costs for the restaurateur. The largely migrant restaurant staff population does not value long term benefits nor are they keen on going to a ESI hospital. What matters to them largely is cash in hand. Having cash available to do this means restaurateurs can pay their staff more and avoid PF/ESI registration & the related expenses and compliance requirements.  
4) Paying lower GST and income taxes - Direct benefit of reporting lower sales. I believe this is not a primary motivator for restaurateurs and is simply an added benefit that comes with the solution to address the above 3 issues. 

Issue number 3 above (Staff salaries) is not something GST could have directly addressed. But GST could have truly helped with issue 1, 2 & indirectly 4. 

Allowing input credits may not altogether solve the problem of lower sales reporting by restaurants, but would have atleast pushed them to ask for proper bills from landlords and suppliers in order to avail input credit, thus addressing issue 1 & 2 above. Rental collections by landlords through banking channels would have a significant positive impact on GST collections as well as on income tax collections. Smaller suppliers would also slowly gravitate towards digital payments and proper tax payments. Because of the above, the restaurateur’s motivation to siphon off cash would reduce and this will mean higher GST and income tax collections for the government. 

The government should have stayed with the GST framework, kept the GST rate at 12% for all restaurants (or stayed the course with 18%/12% rates as earlier) and allowed them to avail input credit. This would have ensured better collections and also helped clean up the supporting eco-system. Businesses would have been encouraged to move away from cash payments and gravitate more towards digital payments, deal with vendors who are professional and pay taxes honestly and also force landlords to show the real rentals they charge, pay GST & income taxes as per the rules. The GST regime with input tax credits would have slowly pushed the industry and the supporting eco-system towards becoming professional and paying taxes honestly. This would not have been a populist move though, but the long-term benefits would have been very impactful. As for consumers paying more, the government should have let market forces play their part. Why is the government trying to regulate whether a customer should pay Rs. 20.50 or Rs.22.40 for an Idly? Food is an essential need, eating out is not. 

Thursday, August 10, 2017

GST Rates at Restaurants

With the GST roll-out effective July 1, the tax applicable on restaurant bills has been made quite clear. Yet customers seem to argue with the restaurant staff on rates applicable, especially for take-away and home delivery orders. I have provided below the specific clauses applicable and a copy of the advertisement issued by the department specific to restaurants for your reference. You can take a print-out of this and display/show it to customers who have queries on this.

Ad posted by the department in the Times of India on Aug 13, 2017



Ad posted by the department earlier in June 2017


There are 4 kinds of restaurants:

1) Any business with less than 20 lakhs annual revenues need not even register under GST nor do they need to pay anything under GST. So most small roadside eateries are fully exempt from GST.

2) Small restaurants with annual turnover less than 75 lakhs. Note that if a small restaurant has 2 branches under the same legal name with the same GST number, the total revenues of both the restaurants are taken into account to determine the 75 lakhs limit.
Such restaurants with annual revenues less than 75 lakhs can register under GST under the composition scheme and the applicable rate of GST is 5%. Like in the earlier composition scheme under VAT, the restaurant cannot charge the 5% to customers. i.e. If an item is priced at Rs.200, the customer can be charged only Rs.200. 5% of Rs.200 is then payable by the restaurant as GST.

Note: For restaurants in the following states, the annual turnover limit will only be Rs. 50 lakhs - Assam, Arunachal Prdesh, Manipur, Meghalaya, Mizoram, Nagaland, Tripura, Sikkim & Himachal Pradesh.

3) Restaurants without air-conditioning - the rules state that the restaurant should not have AC in any part of the premises. So restaurants with a non-AC section and AC section will still have to charge 18% GST. In practice some restaurants are charging 12% GST for the non-AC section and 18% GST for the AC section, if the AC section in a separate floor with a separate entrance. This seems to be incorrect as per the definition as the GST number is the same for the AC and the non-AC restaurant in the same premises.

4) Restaurants with air-conditioning (in any part of the restaurant) need to charge 18% on all bills for food prepared in the kitchen. The 18% rate is applicable for dine-in, take-away, delivery and even party orders from the restaurant. If the AC restaurant also sells pre-packaged food, such as Namkeens (e.g. Packed Chips in a Halidrams or Adyar Ananda Bhavan), the GST applicable on these items will be 12%

4) When customer order from third party websites such as Swiggy, Foodpanda, Zomato, UberEats etc., the respective restaurant's GST rates need to be charged. If any service charges are levied by these sites, GST of 18% is applicable on the service charges. E.g. If a customer places an order on Swiggy from a non AC restaurant for Rs. 200 and a delivery charge of Rs.40 is levied by Swiggy, then the GST chargeable should be: 12% GST on Rs.200 + 18% of GST on Rs.40 = Rs.24 + Rs.7.20 = Rs.31.20. Total bill with GST = Rs.200 +Rs.31.2 = Rs.231.20.


Google search throws up several results - have provided a few of those links for easy reference.

NDTV: http://www.ndtv.com/india-news/gst-how-composition-scheme-for-restaurants-small-traders-manufacturers-will-work-1717363

Business Standard: http://www.business-standard.com/article/economy-policy/gst-are-hotels-eateries-overcharging-you-how-to-get-the-math-right-117071200236_1.html

Cleartax: https://cleartax.in/s/impact-gst-food-services-restaurant-business

BGR: http://www.bgr.in/news/food-ordering-apps-uncertain-of-gst-slab-charge-customers-variable-rates-decline-orders/

Wednesday, April 12, 2017

The Flying Squirrel: A fresh coffee experience




Most times, the only decision customers have to make at a café is whether it’s going to be latte, cappuccino or Americano. That’s changed. At the newly-opened Flying Squirrel Micro Roastery and Café in Koramangala in Bangalore customers have to choose their coffee. Is it to be Parama, their ultimate, Sattva, pure and organic, Aromatique, Clouds in my Coffee or Sun-Kissed? Is it to be a pour-over, espresso or Americano, cappuccino or latte? For summer, the Flying Squirrel is also serving some of these fine coffees as cold brews.

This warm, welcoming café, done up in shades of coffee, is the creation of third generation Coorg coffee planter Tej Thimmaiah and adman-turned-coffee entrepreneur Ashish D’Abreo. They have been growers and roasters since 2013 and have now opened the Flying Squirrel which, is a micro-roastery and café, where they can interact with customers, showcase their artisan coffees which also retail online (www.flyingsquirrel.in) and also conduct tasting sessions.

Yes, tasting coffee is an engaging art, not unlike tasting wine, and signals the arrival of a new and evolving coffee culture. When you taste the Flying Squirrel coffees, sourced largely from its own and a few select estates, you learn to tell whether a brew is full-bodied or light, whether the acidity is rounded or sharp, whether there’s a mild sweetness to it. Ashish D’Abreo says it’s a fascinating journey and can add to the enjoyment of your cup of coffee. Speaking of the pleasure to be derived from coffee, he baulks at talking about it only in terms of ‘caffeine kicks’ and ‘highs.’ “Anything that has caffeine will give you a kick, but that is not the aim here,” says this passionate coffee enthusiast. He wants customers to enjoy the nuances of coffee, going back to how it was grown, processed, roasted and served.

It all starts with the bean and how it’s treated on the journey to the cup. The Clouds in My Coffee variant, for instance, is processed naturally, travels to Mangalore to absorb sea-side moisture-saturated air that creates a distinctive bold, deep flavour. Sunk-Kissed, the single-estate coffee, is processed using the pulp sun-drying method, which allows the fruitiness of the pulp to be drawn into the coffee. Then, there’s the roasting. Ashish says the Flying Squirrel coffees are all light-roasted as opposed to the dark-roasting which most cafes and coffee chains resort to, destroying the nuances. Technology and experience enable the Flying Squirrel team to deliver fantastic, perfectly roasted coffees from their gleaming machine. It’s ground then, again to different degrees of fineness or coarseness, to suit different methods of brewing. The pour-over is an intricate art, with controlled amounts of water being poured through the coffee at regular intervals. The Flying Squirrel cappuccino aims for perfection with the milk being raised to just the right temperature, so the foam is light and creamy, not ‘cooked’. Another star coffee here is the Nitro Brew, a cold brew infused with nitrogen making it chilled, light and airy and perfect for hot weather.
Serving coffees that are this carefully made also requires a knowledgeable and skilled staff. Ashish invests a lot of time and effort in staff training to ensure they can explain the qualities of each coffee to customers and also prepare it flawlessly every time.  The effort has clearly paid off and the Flying Squirrel team infuses their passion for freshly ground coffee into every cup. And that makes it very special.

The Flying Squirrel is at:

136, 1st Cross Road,
5th Block, Koramangala,
Bangalore 560095
Phone: 080 40991044



Wednesday, February 1, 2017

New restaurant: Forage





Say what you will about the benefits of central kitchens and restaurants that are so process-driven they don’t even need a chef, I find it reassuring to know who’s cooking my food.  At Forage, just opened in Indiranagar, Bangalore – yes, apparently, there’s room for another in this area bursting with restaurants – it’s Himanshu Dimri of Grasshopper fame in the kitchen.

All those years ago, Himanshu had the pluckiness to cook and serve his fare of the day without a menu. Grasshopper fans came to love the style. At Forage, he’s been equally brave, going for a menu that’s described as California style, focusing on healthy, light, nutritious dishes. And, oh, eschewing that restaurant favourite, chicken, in any form.

The freshness and sparkle of ingredients that are Himanshu signatures are evident in every dish. There was the Zucchini Parpadelle, no more than zucchini sliced into pasta-like slivers, tossed with diced peppers, cherry tomatoes and topped off with delicious caramelised bacon. Every vegetable keeps its integrity and the sweet-salty bacon adds the slightest decadence. My companion loved the Aromatic Spiced Pork Ribs with the can’t-go-wrong accompaniment of pickled red cabbage.  The Sea Bass I had for main course was excellent; if the fish was left unadorned, the pea puree it rested on was zesty and lent a lovely creamy texture to the dish. Our other order was the Braised Lamb which came with sweet carrots and potatoes atop brown rice.

For dessert it was the Date and Cashew Creme Brulee. It wasn’t a crème brulee as we know it, but it was so scrumptious, I didn’t care what it was called. While restaurant desserts frequently leave me fretting about the artificial cream and sweeteners they are concocted from, this one was just date puree crowned with cashew butter, a pairing that worked beautifully. That’s one of the standout qualities of the Forage experience; simple cooking techniques combine with good ingredients allowing their quintessence to shines through, instead of being masked by nondescript sauces and condiments.

Much of the Forage menu is gluten-free – even the pasta is crafted from rice – and there are vegan offerings as well. While this could well have become a place that attracts only serious health nuts, Himanshu Dimri ensures it holds appeal even to those who don’t really care if their rice is white, brown or black. Vegetarians can eat happily here and I love the fact there’s no paneer or babycorn to be spotted.

The menu is small and compact and the setting echoes the style. Forage is designed to be an intimate, cosy space, almost like a home with the charming Mayura Kutappa playing hostess. There’s a living room, providing seating in niches with comfy chairs and colourful cushions. A well-stocked bookshelf invites you to grab a book, find a quiet corner and linger over a cup of coffee. There’s a pretty al fresco space that’s perfect for dinner. 


Forage is at:
318, 6th Main Rd, HAL 2nd Stage, Indiranagar, Bangalore 38

Phone: 080 4852 5250

Friday, January 27, 2017

New restaurant: The Druid Garden


Having extolled the virtues of a small menu in the last post, this one’s all about a restaurant that is decidedly huge. Massive is evidently a virtue at The Druid Garden in Bangalore’s Sahakar Nagar, just off the airport highway. It can seat 500 people at a time, the in-house brewery (to launch soon) is one of the -- if not the – biggest in these parts, both in terms of space and volume of Czech beer it’ll be brewing, and the multi-cuisine kitchen is a sprawl, a luxury few restaurants can afford.
To be honest, I am biased towards small restaurants with compact menus that deliver intimate dining experiences. But the style and design of The Druid Garden had me pleasantly surprised. While it’s a vast space, it’s cleverly tiered, providing seating at various levels and in niches. The retracting glass roof is a marvel and there’s a high-end grill and pizza oven lending warmth to the place. The colours and lighting are subtle, the style understated. Such a huge restaurant could easily have gone over the top with the décor; that, thankfully, has been averted.
The long bar makes a speciality of its cocktails. Some, like the Moscow Berry Mule (vodka, fresh berries, ginger beer) and Breakfast Martini (orange marmalade, Cointreau, Bourbon) were superb, while others such as the Basil Sees Red (red pepper, basil, tequila, soda), were unremarkable.
The chefs deserve congratulations for the bar snacks menu which has on it Spiced Latino Chips of sweet potato, tapioca and plantain and Fried Okra Slivers. No nachos or potato wedges in sight and I was pleased. The Druid Garden Menu is a mix of Indian and global cuisine and covers a vast range; I can only imagine all the activity in that humongous kitchen. The Campagna Burrata (fresh cheese, heirloom tomatoes, blood orange dressing) from the salad list was one of the picks of the menu for me, as was the Asian Spiced Tofu Tacos with cripy quinoa and wasabi mayo. Reflecting the scope of the menu was the Scandinavian-inspired Smorrebrod with Anchovy Paste. These dishes feature in the ‘Small Plates’ menu. Then, there are Burgers, Sandwiches Wraps, Pizza, Grills and Large Plates which run the gamut from Karimeen Polichathu and Andhra Kodi Pulao to Crab Ravioli and Tamale with Chicken.
The beef from the grill, I was told, is locally sourced and it was of very good quality and came perfectly cooked. The Druid Garden has a Thai chef and he delivered super quality in the spicy Tom Yum and Pineapple Fried Rice. I find chocolate desserts in most places just too creamy or mousse-like. The Druid Garden’s Hazelnut Torte, was a work of art, with lush textures, intense flavours. I was recommended the Aztec Coffee – espresso martini, vodka-proofed coffee, chocolate, cardamom foam – for an after-dinner cocktail. It comes in a Champagne tulip coated in cocoa and cinnamon and there was just too much going on there.
Serving it all with a smile and a spring in their stride was the staff. Here is a team that appeared highly motivated and so very happy to be on the job. Well done!


Saturday, January 14, 2017

New Restaurant: Grill 99 at the Ritz Carlton


My first restaurant visit of the year was, I’m happy to report, a refreshingly different experience. Grill 99 at the Ritz Carlton has a gorgeous poolside setting on the hotel’s fifth floor, though the approach, passing the hair salon, spa and gym doesn’t quite give you the idea of what to expect.
Open only for dinner, Grill 99 has stylish gazebos for intimate dining and spaces for large groups as well. It’s the perfect spot then, for a pleasant, if pricey, al fresco evening. I wanted to stand up and applaud when I saw the menu, a compact list of appetizers and soups and just ten items on the ‘grills’ menu, plus a small round-up of sweets.
Small menus announce that the dishes are of the best quality, created from the freshest ingredients and cooked with care. There is certainly a difference between the way the kitchen approaches ten dishes and two hundred. There is no pre-cooking here, nothing to be pulled out of cold storage and reheated for the diner in order to speed up service.
Ritz Carlton Executive Chef Anupam Banerjee is, obviously, in his element here. His style is classic, from his training at some great hotels across the world, even as he blends it judiciously with the modern.  In a market where ‘Not enough choice’ is a frequent – not to mention poorly articulated – complaint, it takes confidence, even audacity, to put out a menu this small. In fact, the Grill 99 wine list is much longer than the food menu.
We began with a rich and creamy mushroom soup in demitasse cups and a superb salad of scallops with apple salsa and caramelised cauliflower and then came the piece de resistance. Giant prawns on restaurant menus can so often be all style and no substance. At Grill 99, these were juicy and oozing flavour, benefiting, no doubt, from a good basting of herb butter. The meats, plump lamb chops and tenderloin with delicious grill marks were perfect. The grills are served in heavy copper pans, nestling amidst sprigs of thyme and rosemary, with cherry tomatoes on the vine, whole heads of roasted garlic and lime. It’s a picture, possibly Provencal, and quite lovely. The accompaniments are comfort classics: truffle mash, creamed spinach, buttered vegetables and pepper sauce which, was, quite frankly, redundant.

Chef Anupam said they were aiming for ‘rustic, yet elegant’ with the serving style and they’ve hit the mark. Dinner at Grill 99, right down to the caramel choux buns, was splendid, the sort of meal that leaves you with the satisfaction of having dined very well, never mind the price. My only niggle is that the core ingredients – Norwegian salmon, New Zealand lamb – must leave such a heavy carbon footprint on their journey to Bangalore. If local produce could somehow replace these, that would be perfect, right?