Govt may soon step in to cut your towering restaurant bills
Have you ever received a bill at a restaurant and wondered where all the extra charges came from? If so, there’s good news - your dining out woes could end soon. The tax department plans to issue guidelines for restaurants to curb the arbitrary — and often illegal — imposition of service charges.business Updated: Nov 12, 2015 23:14 IST
Have you ever received a bill at a restaurant and wondered where all the extra charges came from? If so, there’s good news - your dining out woes could end soon. The tax department plans to issue guidelines for restaurants to curb the arbitrary — and often illegal — imposition of service charges.
The move comes months after the government clarified that the service charge levied by restaurants is not collected by the government. It is a charge that restaurants levy for rendering services — in simple terms, a sort of mandatory tip.
According to a senior government official, various complaints have been raised about these charges, which vary between restaurants.
“Customers do not know that they are not liable to pay tax on top of another tax or a service charge. It is wrong for restaurants to levy service tax on the VAT component or service tax on the service charge component. Charging 14% on the entire food and beverage bill is also wrong. The Centre will soon introduce guidelines spelling out the principles of service tax and explain where and how it must be charged,” the official said.
Anita Rastogi, partner, indirect tax at PricewaterhouseCoopers, said, “The service tax of 14% is charged only on 40% of the total bill and not 100%. So the effective tax is 5.6%. The key point here is that service tax is charged only on services and not goods, namely, the food consumed.”
“On the sale of food, VAT should be charged. Another area where restaurants may be overcharging could be bottled water. A restaurant can only charge VAT on the food it prepares. Also, VAT is embedded into the MRP in the case of packaged products. So if a restaurant includes charges VAT on bottled water that is wrong,” Rastogi said.
Officials from the customs and excise departments say these troubles will end once a uniform goods and services tax (GST) comes into effect.
According to the GST model, which is expected to roll out in 2016, the majority of indirect taxes (such as service tax, excise duty, VAT and customs, among others) would be subsumed. With respect to restaurant charges, a single consolidated tax (of around 20%) will be levied on the invoice amount.
Government calculations show that once GST is adopted, restaurant bills could come down by reducing confusion and, with it, malpractices.