Eating at restaurants to burn bigger hole in your pockets

With a proposed 3% hike in value added tax, restaurant bills may go up by about 10%

People frequenting high-end restaurants will now have to pay extra as the state government, in its annual budget, has proposed to hike the value added tax (VAT) under the composition scheme to 8% from 5%. This means that these hotels and restaurants will now be forced to increase the prices on their menu by about 10%.

A day after the state budget was announced, restaurateurs said they are unhappy with the government’s decision. According to Riyaz Almani, who owns several high-end outlets, said eating out at restaurants should not be seen as luxury . “Restaurants are a part of the infrastructure and they are really struggling today. The government needs to take proactive steps to rationalise taxes in order to boost them,” said Almani.

State finance minister Sudhir Mungantiwar, in his speech on Friday, said that the composite scheme was designed for small dealers. “I propose to enhance the rate of composition to 8% if the turnover of food and non-alcoholic drinks in the previous year has exceeded Rs3 crore,” said Mungantiwar.

At present, hotels and restaurants have a choice to either charge a flat VAT of 12.5% on the customers’ bills or opt for the composite scheme where they pay 5% directly to the government. Though the hike will not affect majority of the restaurants as they have approximate turnover of Rs1 crore, this will affect the high-end and chain restaurants with turnover above Rs3 crore.

In the past few years, the hotels and restaurants have been going through a rough patch owing to high licence fees and labour issues. Many have even had to shut shops as they were unable to cope with the rising prices.