Tax department to warn restaurants to cut prices; Pass on benefit of 5% GST to diners

After FMCG companies, it is restaurants that the tax department and finance ministry is likely to instruct to cut prices. The government is believed to have taken strong exception to restaurants hiking food prices despite the sharp cut in GST to 5%.

Confirming this development, Vanaja N Sarna, the chairperson of the Central Board of Excise & Customs (CBEC) told ET Now that letters would be written to restaurants to roll back the recent price hikes, and to ensure consumers benefit from the lower 5% GST rate. Sarna also confirmed the ET Now newsbreak of the tax department imposing penalties against those restaurants that would continue to indulge in anti-profiteering.

The GST Council had decided to bring down the GST rate on dining out to 5%, but had simultaneously disallowed restaurants from claiming input tax credit. Leading restaurateurs have said the removal of input tax credit on rent, crockery, food ingredients etc would lead to their costs rising by at least 6-7%, which is why they hiked prices in the first place.

Restaurants has raised prices to ensure consumers pay almost the same as before the 5% GST rate came into effect.

This has not gone down well with the government. Senior bureaucrats in finance ministry point out that restaurants had failed to cut prices when they had the benefit of input tax credit, and should, therefore, stop crying foul.

The tax department's stern warning to FMCG had started to pay dividends within 24 hours, with Dabur being the first company to cut prices.