A furore has built up on social media, as many restaurant chains have increased their food prices instead of passing on the GST rate cuts to consumers.

Restaurants hiking prices post GST rate cut BJP promises action in TNWikimedia Commons/Dheeraj K
news GST Monday, November 20, 2017 - 16:02

For everyone that cheered the GST rate cut on restaurants and coffee shops announced last week, happiness has turned into outrage in just a matter of days.

Anger has been erupting on social media, as several examples have emerged of restaurants hiking their base prices to charge customers the same amounts as before the rate cut. In effect, though tax rates on food have fallen, customers are still paying the high rates they were paying before.

The issue has bubbled over offline too, as Tamil Nadu BJP President Tamilisai Soundarajan announced that the party will conduct a survey of restaurants across the state.

“In some restaurants they are still charging the old GST rates. In others, even though the GST rate has been reduced, they’ve increased the MRP to make up for it,” she said.

“We, particularly the members of our youth wing, will visit restaurants across Tamil Nadu to see if GST is being properly applied. If it is properly applied, the hotel owners and managers will be appreciated. If it is not done correctly, they will be requested to apply GST correctly. And if they still do not accept, complaints will be filed,” she added.

Complaints against the high GST rate (18% for AC restaurants and 12% for non-AC restaurants) had been repeatedly raised, before the GST council cut the rates to 5% last week. However, many consumers found that their bills were not reducing proportionately, as restaurants had quietly increased the cost of food items to match.  

One of the biggest targets of this public anger has been fast food giant McDonald’s, with bills showing its hiked prices being tweeted widely.

After the furore over McDonald’s, complaints have been raised against many other fast-food and beverage outlets.     

Many have also claimed that restaurants continue to charge old GST rates even after the tax rate had been cut.

And it’s not only multinational fast food chains. Sangeetha Restaurant in Chennai had also faced flak after BJP activist SG Suryah had tweeted a bill showing the restaurant’s hiked prices.

However, the restaurant reduced its prices to reflect the rate cut within a day.

McDonald’s has claimed that it was forced to increase its prices as the rate cut was accompanied by a removal of the Input Tax Credit, the reduction in taxes paid on raw materials. The fast food chain claimed that this had increased its operation costs by around 10% and hence had led to the hike in prices.

However, a Financial Express article by Pragya Srivasatava, argued that the Input Tax Credit was already meant to be passed on to customers, which restaurants had failed to do. But they were now using this as a pretext to continue to collect the same rates from customers, though the GST rate had fallen, the article argued.

While some fast food chains have hiked or are looking to hike their prices, though, restaurant association representatives have denied any wider moves to do so, saying that this would be counterproductive when restaurants are already suffering losses due to higher prices. â€śHow can we do that when we all are having 35% to 40% losses because of increased GST. People were not coming to restaurants when the GST was increased to 18 %," M Ravi, President of the Tamil Nadu Hotel Association.

Though the government has announced that a body to check profiteering is being set up, reports say that restaurants hiking prices cannot be pulled up. "There was a case against them when they did not pass on the benefits to consumers after the launch of Goods and Services Tax (GST) in July, but we did not act against them. Since we do not control prices, it (the hike) is a call that restaurants have to take after factoring in how competition behaves," TOI quoted a tax official as saying. 

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