Since yesterday, photograph of two restaurant bills placed alongside showing an increase in the price of an item after GST rate cut has been doing the rounds on social media.
Until now we were blaming and brandishing the govt as thugs and looters but the real looters are Restaurant owners and Hoteliers.They cant hide behind Input credit as most of their raw material are taxed at 0% pic.twitter.com/cHZ1zzrXLV— Rishi Bagree 🇮🇳 (@rishibagree) November 15, 2017
Both bills are of McDonald's restaurant in The Hub mall in Goregaon (East) in Mumbai. The food item ordered is the same too - a Regular Latte. The bills show that when the GST rate for AC restaurants was 18% till November 14, the price of the item was Rs 120. But when the rate was reduced to 5% from November 15 onwards, the price of the same item has gone up to Rs 134. The new pricing is such whatever the GST rate, the customer pays the same amount eventually on the food item - Rs 142.
So, is the restaurant chain duping customers and not passing on them the 'benefit' of the rate cut? This has turned into a heated debate on social media with many users complaining that despite reduced GST on restaurants, the total bill amount remains same as before.
A McDonald's spokesperson of West and South India, without wishing to be named, recapped what finance minister Arun Jaitley had said while announcing the revised GST rates: that the government is taking away the benefit of input tax credit for restaurants with an annual revenue of Rs 1 crore or more as they were not passing on the benefit of lower tax incidence to consumers.
"Since we are not getting input tax credit anymore, our operation cost has increased by 10-12%," the McDonald's spokesperson told ScoopWhoop News. "But we have changed the prices of some of our items in such a way that the customer continues to pay the same price as before [when the GST was 18%)," he said.
The spokesperson said that the fast-food chain has, however, reduced the prices of some of its iconic items after the revised GST. "For instance, our Big McSpicy Chicken Wrap's price has come down from Rs 178 to Rs 149. Similarly, price of our Maharaja burger has been slashed from Rs 191 to Rs 149."
"This is the path we have chosen. Other restaurants may have made structural changes of a different kind," he said.
McDonald's also tried to pacify customers on social media when confronted with the same question.
The Government has brought down GST from 18% to 5%, but there has been a removal of Input Tax Credit.[1/3]— McDonald's India (@mcdonaldsindia) November 15, 2017
Due to this, our operating costs have gone up. However, keeping customer convenience in mind [2/3]— McDonald's India (@mcdonaldsindia) November 15, 2017
we have structured the changes in such a manner that total amount paid by the customer remains the same. [3/3]— McDonald's India (@mcdonaldsindia) November 15, 2017
A Twitter user posted a thread explaining what McDonald's has done.
There are bills going around on how restaurant have not cut prices after GST has been cut to 5 per cent. A small thread on that.— Vivek (@kaul_vivek) November 16, 2017
What we have now is a 5 percent tax on restaurant bills. This is a flat tax with no input credit available. Earlier tax was 12/18 percent depending on whether restaurant was air-conditioned or not.— Vivek (@kaul_vivek) November 16, 2017
With no input tax credit available the 5 percent tax is in effect not a value added tax. This basically means the restaurants can claim that since they are not getting an input credit, hence, they need to raise their pre tax price.— Vivek (@kaul_vivek) November 16, 2017
Ultimately, the price that the consumer pays after 5 percent GST works out to be the same as earlier. This is a perfectly valid argument.— Vivek (@kaul_vivek) November 16, 2017
If you as a consumer feel a restaurant is expensive simply don't go there. If enough people do that the restaurant will automatically have to cut prices. If people continue going, then the price doesn't really matter to them.— Vivek (@kaul_vivek) November 16, 2017
People, however, continue to be divided.
So did u guys reduce the prices before levying 18% earlier when u availed input tax credit ? @askGST_GoI— Kaustubh (@K4USTU3H) November 15, 2017
That's the most lousiest explanation I have ever come across! Price to customer should reduce! Price it at 120 and pay 6 rupees tax (5% of 120) to government. Transaction value becomes 126.Instead you are raising price. Complete illogical— Amogh Chaphalkar (@chaphya) November 15, 2017
Why should your structure increase the base. Even earlier where you were getting a tax return you were not passing it on anyways. Unethical— Abhishek Gaonkar (@AbhiGaonkar421) November 16, 2017
Please tell us how much you had reduced price post-GST when you were able to claim input tax credits?— RJ (@WowDoge007) November 16, 2017