FOOD PANGS: NRAI wants the government to clearly define food aggregator platforms like Zomato, Swiggy in e-commerce policy
A dual goods and services tax (GST) rate, giving an option of claiming input tax credit (ITC), akin to the real estate sector, is among the key demands the National Restaurant Association of India (NRAI) to the government. This approach will allow food service players to choose between a 5% rate without ITC and 12% rate with ITC depending on the nature and impact of GST on their respective businesses.
Samir Kuckreja, trustee, NRAI, said that the India food service industry is the third largest at $61 billion in 2018-19, after retail and insurance, contributed an estimated Rs 18,000 crore in taxes. “We are strongly advocating for a dual GST rate for the food service industry. GST came into force from November 2017 and what has happened is that growth has only slowed down in terms of new outlets. That’s because there is no ITC on capital on capital expenditure (capex) as a result, if restaurant players are opening lesser number of new outlets compared to pre-GST levels as it involves spending more money. Accordingly, profitability of restaurateurs has been impacted,” said Kuckreja.
While non-liquor food and beverage (F&B) players contribute the major part in taxes at 38%, input tax credit contributes 33% and liquor contributes 23%, NRAI said in its latest food service report. The apex body is also of the view that the tax contribution, as per NRAI data, has become stagnant post GST implementation. Thus, the government’s assumption of a potential increase in tax collections post reducing the GST rate from 18% with ITC to 5% without ITC has not worked as expected.
“We are actively pursuing the dual GST plan and hoping for the government’s support in this matter,” said the hospitality industry veteran, former NRAI president and founder of hospitality and retail sector advisory/ consultancy Tasanaya Hospitality.
Anurag Katriar, head of NRAI’s Mumbai chapter, and executive director and chief executive officer, DeGustibus Hospitality Pvt Ltd, said the current GST regime for the food service industry is a akin to the composition scheme. “We collect (tax) and pay (the government) and there is nothing in between. The pain point for a restaurateur is that GST paid on renting a real estate space is very different from Mumbai to Varanasi and that can alter the contour of our business. It’s a dual whammy as on one side the project cost is increasing because there is no input tax credit and on the other side margins are getting constrained,” said Katriar.
Another area that needs attention is online platforms like Zomato and Swiggy that are driving the food delivery business for the industry while dumping private equity money to fund discounts. “It is creating a bit of an unfair situation and that’s a concern. Data masking (by online food delivery platforms) is another crucial aspect that needs to be looked into very seriously,” said Katriar. While NRAI is continuously engaging with the food delivery aggregators on addressing issues including the cloud kitchen and private label operations, there has been no change on the ground as such. “Unless that comprehensive e-commerce policy comes, I don’t see a major shift happening. That’s because it’s a status quo in a way until that policy is notified,” said Katriar.